Kentucky's top bank regulator admonished the state's bankers for not backing changes to the state's branching laws.
Speaking here at the annual meeting of the Community Bankers of Kentucky last week, Arthur L. Freeman, commissioner of the Department of Financial Institutions, predicted dire consequences if banks are not granted statewide branching. He said he is worried that limitations on where banks can do business could prevent them from growing large enough to compete with out-of-state institutions.
"There is no industry in Kentucky other than banking that is prohibited from doing business throughout the state," he said.
By law, a bank in the Blue Grass State is not allowed to establish a branch outside its home county. To enter a new area, a bank has to buy an institution based in that county.
Kentucky is one of five states where such a rule remains in place. One of the states, Arkansas, will permit branching beginning in December 1998.
Legislation to ease Kentucky's law was introduced this year but did not make it to the Senate floor before the session ended April 15. Mr. Freeman blamed the bill's defeat on infighting among the state's banks and bank associations.
"The competition is not other community banks, the competition is State Farm and the Farm Bureau," Mr. Freeman said, referring to some of the entities who have applied for thrift charters. "While you are arguing amongst yourselves, these guys will eat your lunch."
Bankers are divided over whether branching laws need to be changed. And even those who want to revise the law are split on what to do: Some want to branch statewide immediately, while others would like to see branching first be permitted only in neighboring counties.
Disputes among members kept the state's two bank trade groups-the Community Bankers and the Kentucky Bankers Association-from taking positions on this year's bill.
There is now plenty of time for each side to lobby. Kentucky's legislative body does not meet again until Jan. 1, 2000.
G. Bill Hardy, president of Peoples Bank of Bullitt County, Shepherdsville, said he is in no hurry to see a change. Banks in big cities have had more of an opportunity to grow than his $140 million-asset institution. If they were allowed to enter his community, they would have the resources to dominate the market, he said.
In addition, a change in the law would hurt the value of his bank.
"Right now, banks wanting to enter my market have to pay a premium to do so," he said. If branching was allowed, a bank would not have to buy Peoples Bank to get into Bullitt County.
But purchasing a bank is not an option in many parts of Kentucky, said Orson Oliver, president of $1.4 billion-asset Bank of Louisville. "I can tell you for a fact there is nothing for sale in many counties," he said.
Mr. Oliver advocates first allowing branching in up to four contiguous counties, and then eventually statewide. That way, a bank could not leapfrog across the state, but would be allowed to "grow naturally."