A House committee of the Texas State Legislature this week issued a report recommending that lawmakers pass legislation in the 1995 session to opt out of the national interstate branching law.

The special House committee on small business said that interstate branching would hurt Texas consumers and hamper small-town financial institutions' access to capital.

In September, President Clinton signed the interstate branching bill that by next fall will enable banks to make acquisitions anywhere in the country and consolidate their holdings into a single branch network by 1997.

The issue has caused a rift between the state's bank trade groups. The Independent Bankers Association of Texas wants the state to opt out of the federal interstate law, while the Texas Bankers Association says it will oppose such legislation.

"It's a great first step for us to achieve our objective, which is to have Texas be the first state to opt out on interstate branching," said Christopher Williston, president and chief executive of the independent bankers group, about the committee's report.

Mr. Williston's group contends that the interstate branching bill would divert capital from the state and hurt the economies of hundreds of communities.

In contrast, the Texas Bankers Association maintains that community banks won't be hurt by the new law because they have successfully competed against larger, out-of-state institutions for several years.

"I just think on the face of it, [the committee's conclusion is] incorrect," said Gordon Muir, TBA's chairman and vice chairman of $3.5 billion-asset Cullen/Frost Bankers, San Antonio.

"I have not yet heard anyone say how interstate braching will hurt the community bank."

Texas is the only major state actively considering such legislation, according to the bankers association.

Texas Bank Commissioner Catherine A. Ghiglieri said her department has taken a neutral position on the opt-out issue.

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