Savings banks are unacknowledged engines of community development, says New Jersey's banking commissioner, Jeff Connor.

That is why, Mr. Connor says, he recently proposed legislation that would grant them interstate branching rights. His initiative was announced at the annual meeting of the New Jersey Council of Savings Institutions.

Interstate branching would bolster profitability, Mr. Connor says, enabling the savings banks to step up redevelopment.

But he says state savings banks have been neglected in the community investment plans proposed by President Clinton and Sen. Bill Bradley, D-N.J.

"State-chartered institutions, which have been community based institutions all along, are way out ahead of the pack," Mr. Connor says.

"Here we have institutions which take deposits locally and transform them into community loans. Yet when I suggest to people in Washington that we already have a model for community development banks, they seem surprised."

New Jersey has 24 state-chartered savings banks, and conversion is pending for two savings and loans associations. The state's savings banks have more latitude than its S&Ls to make commercial loans.

Federally chartered savings and loan associations already have interstate branching rights. Granting the same rights to New Jersey's savings banks would "give them a jump on their counterparts" in other states, Mr. Connor says.

"Substantial savings will be generated through the consolidation of management, legal, data-processing, and compliance activities," Mr. Connor says. "Ultimately, the financial strength of the industry as a whole will be improved."

The legislation he will propose was drafted with help from the savings institutions group.

Its president, Samuel J. Damiano, says his 17 members have very strong capital ratios, and "that's why we're talking about going across state lines.

"We don't want to appear to be money-centers, though," Mr. Damiano says. "We want people to know we're community oriented."

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