SAN ANTONIO - State-chartered banks earned a record $20.1 billion in 1994, outpacing the average growth rate for banks by the Bank Insurance Fund, the national trade association for state regulators reported.

Net income at the 7,680 state-chartered institutions was 6.7% greater than in 1993, even as the number of state banks declined by 4.5%. That compares with an increase of 5.4% in earnings for all BIF-insured institutions and 3.7% for the industry, the Conference of State Bank Supervisors reported at its annual meeting here this week.

State-chartered institutions had $1.99 trillion of assets and $1.84 trillion of deposits at yearend 1994, compared with $2.3 trillion of assets and $1.6 trillion of deposits held by national banks. The increases of 7.66% in assets and 4.1% in deposits at state banks also exceeded the average for all banks, the report said.

Average return on assets in 1994 for state banks was 1.0%, while return on equity averaged 12.6%, the group said.

Its report is part of the group's effort to promote the strength of the state banking system despite predictions by what conference president and chief executive James Watt called "Beltway gurus" of its demise. Passage of the Riegle-Neal interstate branching law has prompted the pessimism about state banks' survival.

The trade group pointed out, however, that 49 national banks had converted to state charters in 1994, while only 11 state banks switched to federal charters.

"The state system is not only alive and well but growing, prospering, and changing in ways we have just begun to imagine," Mr. Watt said in a speech here to bankers and regulators.

The report noted that the dual banking system had escaped the threat last year of a federal plan to consolidate federal regulators into one agency that would oversee both state and national banks.

"Proposals like this would eliminate the benefits of our dual chartering system: a true choice between regulators and the ability of state and federal regulators to operate independently to serve the separate needs of their populations," the report said.

State banks used their record income in 1994 to support asset growth and shore up capital. The aggregate equity capital ratio exceeded 8% for the second year in a row, two percentage points greater than the federal requirement.

Meanwhile, consolidation continued to shrink the industry, as 550 institutions merged but only 50 new banks were chartered.

The 4.5% decline in the number of state banks was less than the 6.8% drop in national banks. About 71.4% of all BIF-insured banks remain state- chartered.

Bank failures also continued to drop in 1994. Thirteen institutions failed, overall, including 10 state banks.

State regulators also supervise most foreign banks operating in the United States. About 63 foreign-owned banks, with 495 offices and $672 billion of assets, had state charters in 1994, making 30% of all loans to U.S. businesses.

The report also highlighted efforts by states to update their banking laws. Five states rewrote outdated banking codes, Washington State reformed its regulatory practices, and Ohio streamlined its exams.

Also, Michigan became the latest state to let banks sell insurance, joining 29 others.

And the state regulators group continued its effort to ensure professional regulation by its members, accrediting the banking departments of Massachusetts, Puerto Rico, and Utah and reaccrediting seven others.

Thirty-three states are now accredited, supervising 83% of all assets held by state banks.

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