HARTFORD, Conn. - The plan to merge Chase Manhattan Corp. and Chemical Banking Corp. shows that large banks cannot survive without growing, Fleet Financial Group chairman Terrence Murray told a Federal Reserve panel Monday.

At a hearing on Fleet's proposed merger with Shawmut National Corp., Mr. Murray called the Chase-Chemical deal "a megatransaction that underscores what is happening in the bank consolidation world."

"Times have changed," Mr. Murray said. "Whether we like it or not, consolidation within the banking industry is proceeding at a rapid pace."

Mr. Murray defended the Fleet-Shawmut merger as the only way to maintain a large, independent bank in New England. In 1986, he noted, the region had eight large commercial banks; today, not one New England bank qualifies as a national giant.

"We had lost significant ground to other regions in the country," Mr. Murray said. "The situation was inherently unstable. We had to ask ourselves the following important question: How are we going to protect our region on an ongoing basis?"

Fleet and Shawmut had two choices, he said - merge or be bought by foreign or out-of-region competitors.

Mr. Murray spoke at the second of three hearings the Federal Reserve Board is holding to assess the merger's impact on communities in the Northeast. The Fed conducted its first hearing Saturday in Boston. The final forum is scheduled for today in Albany, N.Y.

The Fed last held a public hearing on a merger application in 1991, when BankAmerica Corp. bought Security Pacific Corp.

The Fed can reject the Fleet deal if it believes the union would hurt the "convenience and needs" of the community. It also can kill the merger if it believes the banks are violating the Community Reinvestment Act or fair-lending laws.

Fleet's merger plan doesn't sit well with some local lawmakers.

State Rep. James R. McCavanagh, who is chairman of the Connecticut General Assembly's banking committee, said a consolidated Fleet-Shawmut would be too large to care about small businesses or consumers.

"The Fleet organization should not be allowed to gobble up its last major competitor," Rep. McCavanagh said. "Both the Fleet organization and the Shawmut Bank organization can each find other merger partners from outside New England in order to fulfill their respective growth needs."

Connecticut Attorney General Richard Blumenthal threatened to derail the merger if the banks don't make "hard commitments" to invest in the state's inner cities, make housing affordable, and foster job growth.

"Without these essential ingredients, it will be a public interest bust," Mr. Blumenthal said.

Hartford Treasurer Denise L. Nappier said she has a "grave concern" that Fleet officials have not presented the state with a detailed community reinvestment plan.

"The community deserves some answers before this merger is allowed to move forward," Ms. Nappier said.

But the merger got a boost from Michael W. Tierney of the Local Initiative Support Corp. Fleet made two $100,000 contributions to create the corporations, which build affordable housing, in Connecticut and Rhode Island, he said. "We anticipate and expect Fleet can and will do even more," he said.

Warren E. Leuteritz of the Hartford Economic Development Corp. also supported the merger, saying Fleet has assured him that it will maintain current community reinvestment commitments for the next two years.

Jerry V. Leaphart, who said he wants to buy some of the branches the merged bank would sell, asked the Fed to drop its demand that Fleet sell the branches to a single party. This requirement would prevent his minority-owned holding company from bidding, he said.

Eileen S. Kraus, president of Shawmut Bank Connecticut, tried to counter the critics, saying the merged bank would be able to provide small businesses and low-income communities with more products.

"This merger will create an institution that serves the region's public interests even better than the two organizations did on their own," she said.

The public has until Sept. 12 to submit written comments to the Fed. Bank officials expect to consummate the merger late this year.

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