I'm often asked my view of the prospects for the nation's thousands of community banks. Many seem to fear that with the advent of nationwide banking community banks will go the way of the corner grocery.

I don't see it that way, at least in terms of what is happening in the marketplace. Well managed community banks - those focused on their customers - have always been able to compete successfully against their larger brethren.

Smaller banks are able to offer personalized service and develop loyal customer relationships more easily than larger banks. The larger banks struggle to think and act smaller. Affordable Technology Improvements in technology are actually helping the smaller banks. It's becoming less and less expensive for small banks to use technology to serve the needs of their customers.

Except in manufacturing-type operations - e.g., mortgage servicing, credit cards, some trust activities - scale economies are very limited' in banking. Even where scale economies exist, small banks can provide services on competitive terms through arrangements with third-party vendors.

Just as statewide banking did not drive community banks out of business in places like California and New York, nationwide banking will have little effect on the viability of these banks nationally.

I have yet to find a community banker who would rather have another well run community bank across the street than a branch of a large bank.

If there is a dark cloud halvering over community banks, it is the burden of excessive government regulation. Community banks, by and large, don't have the trained staff to cope with the enormous volume of regulations imposed on them or a sufficient mass of customers over which to amortize the cost of compliance.

Competition and nationwide banking won't run the community banks out of business, but the government might. More and more community bankers are throwing up their hands in frustration and despair.

I 'recently received a letter from a friend who has been a community banker for nearly 50 years. Not only has he been extremely successful in banking he has always had a tremendous enthusiasm and love for the business. Here are a few of the thoughts he expressed in his letter, which frankly made me sad:

"We have been experiencing much of what many bankers have under the cynical eyes of not-dry-behind-the-ears examiners .... Even though you have a long history of top performance, Camel 1's, etc., they tell you you must be doing things wrong because you don't follow the checklist and have a policy on policies ....

Presumed Guilty

"I've had enough. Just being a bank director and stockholder is too scary. It's presumed you are a crook or incompetent, regardless of almost 50 years of flawless performance ....

"I'm trying to quit the boards of our banks .... If the tax consequences weren't so severe, I'd sell all of my stock in the banks."

There are a lot of people in Congress who purport to care about community banks. They wring their hands about the potential for interstate banking to eliminate local banks serving local needs.

If they are sincere in their views, they will repeal or drastically overhaul the burdensome laws that constitute the real threat to community banking. A good place to begin is the law that is so inaptly titled the Federal Deposit Insurance Corp. Improvement Act of 1991.

Mr. Isaac, a former chairman of the Federal' Deposit Insurance Corp., is chairman and chief executive officer of Secura Group, a financial services consulting firm based in Washington.

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