CHICAGO - Atlantic Bank of New York's announcement last Wednesday that it is selling its Chicago branch to Chicago Community Bank is the latest in a string of deals in one of the nation's most crowded banking markets.

Since January, six banks in and around the Windy City, not including Atlantic, have agreed to sell to local competitors. And though Chicago and its suburbs are still home to more banks than any other U.S. metropolitan region, the recent activity could be a sign that the area's long-awaited contraction has finally arrived.

"I believe that the Chicago market will ultimately consolidate down to a level comparable to other markets - four to six banks controlling 75% to 90% of each market segment," said Mitchell Feiger, president and chief executive officer of a Chicago company that has been active in the most recent consolidation, MB Financial Inc.

Greater Chicago has about 270 banks with assets of less than $10 billion, according to the Federal Deposit Insurance Corp., by far the most of the cities in the FDIC's Chicago region. Metro Cincinnati is second in the region, with 62 banks in the city and surrounding counties.

Within Chicago's city limits there are 61 banks - the same as New York, which is three times as large. Los Angeles, the nation's second-largest city, has 42 banks.

The explanation is that Illinois was one of the last states to accept branch banking. That, of course, spawned a high number of small, independent banks.

Kenneth F. Puglisi, an analyst with Sandler O'Neill & Partners in Chicago, said merger activity in the region has clearly picked up from last year, though he stopped short of calling it a trend. And while he suggested that there may be other explanations - such as more realistic expectations from sellers, who no longer are holding out for offers at 25 times earnings - bankers say size has become an issue.

"To be in the big game in the City of Chicago, you need to be at $3.5 billion," said Ken Skopec, president of $1.5 billion-asset MidCity Financial Corp. in Chicago. Otherwise, he said, a bank cannot afford the technology and the staff to serve consumers and business customers.

MidCity announced in April that it had agreed to sell itself to $1.8 billion-asset MB Financial. It was the second deal of the year for MB Financial, which announced in February that it had agreed to buy $218 million-asset FSL Holdings Inc. of South Holland, Ill.

MidCity said it believed that combining with its main rival would increase its odds of survival. "It's going to become even more competitive over time because more of the major players are coming to town," Mr. Skopec said of Chicago.

A case in point is Cincinnati-based Fifth Third Bancorp's November acquisition of Old Kent Financial Corp., a Michigan company that had a high profile in Chicago. Mr. Skopec said that will prove to have been the start of a trend of regional banks moving into the market and said he expects National City Corp. of Cleveland to follow soon.

Brad Stamper, president of Fifth Third's Chicago region, acknowledged that $70 billion-asset Fifth Third is not accustomed to the competition level Chicago poses, but, "If there's not a competitive market out there, I wish somebody would tell me where it is."

The jockeying for deposits and loans seemed to tire Atlantic, a $2 billion-asset unit of the National Bank of Greece. It said it was selling its lone Chicago branch because the branch had been operating at a loss for several years and was not likely to improve in the area's "escalating competitive climate." The price of the sale to $127 million-asset Chicago Community Bank was not disclosed.

Another reason Chicago is so well stocked with independent banks is that new banks keep opening up here. About 40 have applied for or received charters in Illinois since 1998, and the bulk of those are in the suburbs.

MidCity's Mr. Skopec said he expects start-up activity in the region to drop off with the continuation of merger activity and the arrival of large regional banks, because organizers will not be able to raise enough capital to keep pace.

But Joel Zemans, president of $322 million-asset Mid Town Bancorp, said that no matter how much consolidation occurs, Chicago will always have a comparatively large number of community banks. Mid Town announced this month that it had agreed to be sold to MAF Bancorp of Clarendon Hills, but Mr. Zemans predicts that new banks will pop up as old ones disappear because executives dislocated by mergers know that the banking public is used to having lots of choice.

"It seems clear to me that at the same time there are mergers going on, there are a substantial number of de novo charters," he said. "I believe frankly that Illinois' resisting branch banking years ago has led to a highly competitive market that serves the consumer well."

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