The demise of the community bank has been predicted time and again. Most recently, industry observers have claimed that economies of scale would win the future of the banking business.

However, I believe large banks have diseconomies of management that create unique opportunities for community banks. Here are a couple of stories that illustrate the point.

In a recent deal, a bank in the Middle Atlantic states acquired two branches two miles apart. One had $50 million of assets; the other, $120 million. The acquirer chose to consolidate the branches into the facility with more deposits.

A community bank took over the smaller facility the next business day and has grown tremendously, capitalizing on the 1,500 commercial establishments in the area.

When asked why the bigger bank had consolidated the two branches, the chief executive of the community bank responded:

"A guy sitting in his space capsule 500 miles away is out of touch with reality. Had he been here, he would have seen this was a better location with more opportunity in the market."

A similar story: A large New York bank sold a $20 million branch to a super community bank in the same market for a small deposit premium. The super community bank could not understand why the large bank wanted to sell, because the branch was known to be in the highest-growth small- business base in the community. The branch now has $100 million of assets.

These two examples show what happens when decision makers are too removed from the field. They show the vulnerability of a bureaucracy operating on axioms and analyses that are not questioned case by case.

Several issues can crop up with bigness:

Rigidity. Big banks feel the necessity to exercise control, limit local empowerment, and remove decision-making from units that are distant from headquarters. The price they pay for increased control is local-market inflexibility, rigid adherence to blind decision-making rules, and emasculation of the troops in the field.

Dependence on formulas. In their quest to standardize and achieve the comfort of control, larger companies' make decisions without considering conditions specific to a particular borrower or market. Decisions are made the same way, using the same variables, whether for a 3,000-person town or for a large metropolitan area.

It is difficult for larger banks to accommodate the unique circumstances of specific markets. Though profitability hurdles should be met in any market, local-market tradeoffs that do not compromise overall profitability should be considered.

Dehumanization. Larger banks generally treat their people as fully replaceable production units. Some of these banks are well known for a culture in which employees must look over their shoulders all the time, since so many others could replace them instantly.

This kind of environment discourages initiative and accountability. People are not committed to the company, since the company clearly has not demonstrated commitment to them. The long-term cost is in employee retention; the short-term cost is that brains and capabilities are underused.

Many industry observers feel that caring needs to replace control as the fundamental job of management. And logic dictates that the larger the company, the less capable management is of exercising and demonstrating care for employees.

The most innovative activities occur at the point of customer contact, where people design their own products - subject to the same profitability parameters as others - and where a better understanding of the customer takes place.

Larger banks do not permit such innovation; they use data base management techniques to centralize the development of products and of expectations about customer behavior. Though these techniques are extremely valuable, too often they substitute for, rather than supplement, market knowledge and intuition.

Large banks thereby lose a very important source of information - the people who touch the customer.

Ms. Bird is chief operating officer of Roosevelt Financial Group, St. Louis.

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