The site of last week's Independent Bankers Association of America convention could serve as a metaphor for the effects of consolidation on the industry.

The number of independent banks in Arizona has shrunk to a small handful, and by far the two tallest buildings in downtown Phoenix belong to BankAmerica Corp. and Banc One Corp.

A Texas independent banker sunbathing by the pool of a downtown hotel found himself in the shade when BankAmerica's concrete and glass monolith blocked the early afternoon sun.

"From 1 o'clock till 3, you can't get any sun," he complained. "Those big guys have cast a shadow over just about everything around here."

Addressing the conference on Saturday, House Banking Committee Chairman Jim Leach laid out in the clearest terms to date what kind of compromise he would support regarding bank ownership of commercial firms.

In order to keep his hand in the legislative process, the Iowa Republican said he would support allowing a bank to invest in a "small basket" of nonfinancial activities, equal to no more than 10% of its capital. He still opposes commercial firms buying banks.

"I don't favor any basket, but the majority of the House Banking Committee may well," he said in an interview after his speech. Rep. Leach, who opposes any mixing of banking and commerce, admitted his willingness to compromise is "a rearguard action."

"I'm trying to diminish the size of philosophical ideas that I don't identify with," Rep. Leach said. But he added that he "would reserve the right to amend it on the (House) floor."

Rep. Leach said that if Congress gives banks and commercial firms much more leeway to buy each other, banks may be enticed to quickly-and perhaps unwisely-snap up nonfinancial concerns.

"Under (this) approach, a bank would have no idea who would be the first to make it a trophy," Rep. Leach said. "The only prudential defense strategy would be to purchase immediately the maximum-sized commercial firms it would be allowed to.

"Concern for credible purchase terms would, by necessity, have to be a secondary consideration."

Rep. Leach has been a vocal critic of allowing any mingling of commerce and banking, but earlier this month he grudgingly admitted that an outright ban of cross-industry mergers "isn't politically realistic."

A bill introduced by Rep. Marge Roukema, R-N.J., would allow banking companies to derive up to 25% of their revenue from non-financial activities. Rep. Leach said he expects the Treasury Department to propose a similar "big basket" approach soon.

"Treasury still has a lot of judgments to make," Rep. Leach said. "They are likely to favor big baskets, but they will describe it with small- basket rhetoric."

Also on Saturday, Federal Reserve Board Chairman Alan Greenspan warned bankers that a strong economy should not be a green light to relax underwriting standards.

"Bankers should now take a pause and reassess the appropriateness of their lending decisions," Mr. Greenspan said. "Mistakes in lending, after all, are not generally made during recessions but when the economic outlook appears benevolent."

Banks are earning thinner margins and facing stiffer nonbank competition in syndicated loans and other markets, he said.

"This suggests the need for a mild caution that bankers maintain sound underwriting standards and pricing practices," Mr. Greenspan said. u

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