In 1975, when Independent State Bank was created as the nation's first bankers' bank, it was known as "the Minnesota experiment."

The state's community bankers had lobbied for it because they were tired of giving their correspondent business to large banks that were also their competitors.

Regulators, however, fiercely opposed the idea, questioning whether the community banks would support the bank. "I was personally told by bank examiners that forming a bankers' bank was a foolish idea," said John Perra, a community banker at the time and one of the organizers of the Independent State Bank. "They even said it was illegal and immoral."

Those skeptics have certainly been quieted. Next month what is now United Bankers Bank will mark its silver anniversary. Based in Bloomington, it has $135 million of assets and more than 200 community banks in the upper Midwest as shareholders. And two years ago it topped $1 million in earnings.

More important, the "experiment" also spawned 17 other bankers' banks, which now serve some 5,000 community banks nationwide. Bankers' banks have emerged as genuine competitors to large, correspondent banks. They have helped community banks keep pace with regional and national banks by brokering loan-sharing deals, offering credit cards, and setting up bulk purchasing arrangements for their members.

"We try to give small banks and country boys a big brother who puts together services that they can utilize so they can compete with the larger banks," said Mr. Perra , who is now the board chairman at United Bankers Bank.

Breaking ranks with the big banks was nothing new for Minnesota community bankers. In the 1930s they created the first trade group made up of small banks. That group evolved into the Independent Bankers Association of America, which in 1999 was renamed the Independent Community Bankers of America.

Still, not all community bankers were on board when the Minnesota Legislature passed a law in 1974 that allowed them to invest in bankers' banks. To drum up support and raise the required $1.5 million of capital, organizers crisscrossed the state to visit community bankers individually.

Their message: Smaller banks should not be dealing with banks that would not think twice about stealing their customers. "Larger banks somewhat threaten our existence," Mr. Perra said. "There's nothing like fear to motivate you."

Dozens of banking companies still offer correspondent banking services. The leaders include Bank of America Corp., Bank One Corp., and Chase Manhattan Corp.

Bankers' banks core services include bank stock loans, check clearing, safekeeping, federal funds purchase and sale, and money transfers.

The banks have also facilitated loan-sharing. Last year Midwest Independent Bank in Jefferson City, Mo., assembled groups of banks to participate in a loan that was too large for any one of them. Midwest Independent handled the bookkeeping and disbursement of the loan; the bank requesting the loan remained the borrower's contact.

But it has not always been smooth sailing for bankers' banks. During the agricultural crisis of the 1980s, six of United's community bank customers failed, leaving United on the hook for $6 million of loans. In 1985, United's board dismissed the original management team and brought in William Rosacker, a correspondent banker at Marquette Bank, as president.

Among his first orders of business was raising $200,000 in capital to help keep the bank solvent.

"It was absolutely heartwarming to see banks whose customers and communities were suffering write us checks when we needed their help," said Mr. Rosacker, who is still the bank's president.

In the past decade United has expanded its customer base to Montana and the Dakotas, and in 1991 it was at the forefront of Internet technology when it established an electronic communication link that allowed its clients to buy products and services online. Several other bankers' banks have modeled Internet offerings after its electronic banking system - United Bankers Bank Network, called Unet for short.

United plans to continue upgrading technology to provide faster service to its clients, particularly those in more remote areas. But it will not forget its roots, Mr. Rosacker insists.

"In the future we will be more technology-driven as a wholesale provider," he said. "But we're still at your door and putting people in cars to drive from one client bank to another."

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