Now that the walls between banking, brokerage, and insurance sales have been officially torn down, many small banks are more fearful about losing customers to larger companies that offer more financial products.

But a group of California banks thinks it may have a way to hang on to those customers without the high cost of creating new divisions or hiring licensed brokers and insurance agents.

Thirty community banks have invested in a new venture called Community Bankers Insurance Agency that will be a conduit for New York Life, Chubb Corp., and Raymond James & Associates to sell their products to the banks' customers - with the banks getting a cut.

Though the new laws let all banks sell insurance or brokerage services directly, this venture provides a low-cost alternative for those with limited resources.

"We're going in a direction where no one else has been before," said Gary Findley, a San Diego bank consultant who hatched the concept along with Harold Shaffer, a San Diego insurance executive. "This will allow small banks to compete with the securities and insurance firms that are poaching on their turf."

Other groups of small banks are looking into developing similar programs. In Virginia, for example, 60 community-bank members of the Virginia Bankers Association have banded together in hopes of buying an insurance agency.

But the California program is believed to be the first of its kind in the nation.

Here's how it works: Member banks will market the products and services of New York Life; of Chubb, a property insurer; and of Raymond James, a brokerage house. The banks will not sell the products themselves, but will refer interested customers to their exclusive partners - and share in the profits.

The 30 banks invested $20,000 each for their stakes in Community Bankers Insurance Agency. The limited liability company is approved to operate only in the Federal Reserve's 12th district and will be regulated by several federal and state agencies.

The company intends to start offering services by the end of June. It also plans to invite other small banks in the western states - and perhaps nationwide - to tap into its network for a sign-up fee to be determined.

Banks that invested in Community Bankers Insurance cited three primary attractions: cost savings, customer retention, and potential fee income.

Albert Roensch, president and chief executive officer of America California Bank in San Francisco, said it did not take much to convince his board of the merits of investing $20,000 in the venture.

"If we don't open our clients up to these services, we will suffer continued pilferage from the big banks," said Mr. Roensch, whose $80 million-asset bank is headquartered in downtown San Francisco, next to branches of Citigroup Inc., Wells Fargo & Co., and Bank of America Corp.

"We want to maintain our importance," added Dennis Woods, chairman and CEO of United Security Bank, a $300 million-asset bank in Fresno, Calif. "We want our customers to think of us as their primary financial services provider."

Bankers noted that the investment is roughly one-fifth of what a bank would have to pay to merely cover compliance costs to enter the insurance or securities businesses. Also, the banks will gain a new source of fee income when their customers buy new financial products.

How much of that income will hit their bottom line remains to be seen, however. Under the profit-sharing structure of Community Bankers Insurance, commissions will be split among the third-party provider (New York Life, for example), the bank whose customer purchased the product, and the other banks that have invested in the venture.

Executives from two California trade groups praised the concept behind Community Bankers Insurance. They said that with more than 250 community banks in California, it is a great place to test its appeal.

"The idea is a good one," said Craig Hudson, executive director of the Independent Community Bankers of California. "If this works in California, it can work anywhere."

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