AUSTIN, Tex. - There's a civil war in Texas, turning banker against banker in a battle over the future of the state's branching laws.

On Wednesday, a plan for Texas to reject interstate branching was passed by state's House of Representatives and sent to the Senate. The unanimous House vote capped two months of fierce and at times bizarre skirmishes - including the distribution of tape-recorded remarks of an irate trade group executive skewering legislators over their personal credit histories.

"You'd think this was over gun control or some other constitutional right, the way some people get so emotional about it," said John Heasley, general counsel of the Texas Bankers Association.

Texas is the pivotal battleground for interstate branching. It has the largest out-of-state banking interests of any state, yet holds stubbornly to its unit banking roots. It's also the biggest of nine states that will consider bills to "opt out" of the Riegle-Neal branching provisions either this year or next.

Independent bankers, by and large, favor rejecting interstate branching. Large banks, led by the Texas Bankers Association, are feverishly trying to block the opt-out bill's passage. To some, it's a fight over nothing less than the future of federalism and the preservation of Texas' rural roots and heritage of fierce independence.

Mr. Heasley of the Texas Bankers Association helped write the federal branching law as a staffer for the House Banking Committee. Now he is trying, and failing, to convince state legislators that the law he labored over is a good thing, and not just a giveaway to out- of-state holding companies.

The debate sank to its lowest level in late January, in what participants now simply call "the taping incident."

John Harris, head of the Texas Bankers Association, was travelling around the state explaining to his members why the association's wants to keep Texas from opting out. The meetings were a huge success, averting the kind of intra-association warfare that has hurt the Colorado Bankers Association.

At a meeting in Houston, Mr. Harris may have gotten carried away when one of his members asked him why the state legislature was so biased against banks.

Mr. Harris responded that, of 181 House and Senate members, 86 "were subjects of legal action for collection by Texas banks . . . (who) operate under the attitude that 'I'm going to stick it to the banks.'"

Then, an angry Mr. Harris told the story of state Rep. Kim Brimer of Arlington, who had introduced a bill that would expand the homestead exemption in bankruptcy from one to 10 acres.

"We sent our spies out to check out his place in Arlington. And guess what? He lives on seven-and-a-half acres," Mr. Harris said.

Mr. Harris may only have been trying to whip up the troops. But the point became mute a day later when transcripts of his remarks, surreptitiously taped by someone at the meeting, appeared all over the capitol building.

The transcripts, happily distributed by one or more of the contract lobbyists for the Independent Bankers Association of Texas, did not serve to fortify the Texas Bankers Association's position with legislators.

Proponents of opt-out argue that further consolidation of the industry, particularly by banks controlled by out-of-state bankers, is bad for the economy.

If national banks are allowed to branch across Texas borders it will make it somewhat less expensive and infinitely easier for a handful of superregional banks, most notably NationsBank, to conduct their business across state lines.

And that, in a nutshell, is what makes so many independent bankers here so incensed.

"The feeling a lot of rural bankers have is that, if NationsBank wants it, it must not be good for me," Mr. Heasley said.

The bill's supporters are playing skillfully off the last 10 years of banking and economic history of the state. NationsBank, then NCNB, was first dubbed "No Cash for No Body" here after its deal-of-the-century for First RepublicBank Corp.

Last year, in hearings before a legislative task force studying small business issues, representatives heard NationsBank officials say, "Agriculture lending just isn't our thing." It was not what the task force, studying why farmers are finding it increasingly hard to find credit in Texas, wanted to hear from the state's biggest bank.

The task force concluded that the consolidation of the banking industry had hurt independent businesses and farms. It recommended that the legislature take action to prevent further consolidation.

"We have to deal with perceptions, whether those perceptions are right or wrong," said Karen Neely, general counsel of the Independent Bankers Association of Texas. "And the perception is that interstate banks have taken deposits out of Texas and not reinvested them back in the community."

NationsBank officials did not respond to inquiries for this story before press time.

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