A Department of Banking move to let foreign banks build their own branches in New Jersey has riled up many of the state's bankers.

Banking Commissioner Elizabeth Randall said she will make the proposal to lawmakers next month as part of a New Jersey interstate banking bill.

The New Jersey Bankers Association wants the state to continue protecting investors in local banks by requiring foreign banks seeking entry to acquire existing institutions.

"Many if not all the shareholders of local banks are New Jersey residents. The impact of de novo banks could lower the value of those franchises," said Leslie Goodman, chairman of the association.

Current law, which for the most part doesn't allow foreign banks in the state, will be overridden in 1997 when the new federal interstate banking law goes into effect - allowing domestic and foreign banks to enter states where they are not based.

Jersey City-based National Westminster Bancorp is the state's only exception. A loophole allowed the U.S. subsidiary of London's National Westminster Bank PLC - then based in New York - to enter the Garden State in 1988 by acquiring First Jersey National Bank.

Community banks in New Jersey fear foreign competitors will muscle in on markets populated by particular ethnic groups, Mr. Goodman said.

Fort Lee, for example, is home to a large Asian population, which probably makes the market attractive to Asian banks. But local banks with branches there reach into other markets too, so a Korean or Japanese bank would have to pay more if it wants to acquire a bank in that market.

Ms. Randall said the states surrounding New Jersey - New York, Delaware, and Pennsylvania - allow foreign banks in. Many foreign-based companies with offices in New Jersey do their banking in those states, she said.

New Jersey banks are divided over the issue, a fact that hits home with Mr. Goodman, a senior executive vice president at First Fidelity Bancorp. He said his company "is a free market player. We don't believe those restrictions are appropriate." Spain's Banco Santander has a 26.6% stake in Lawrenceville-based First Fidelity.

Mr. Goodman added that a foreign bank that wanted a large market share here would probably begin by acquiring a bank anyway.

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