In a demonstration of robust health, the nation's biggest banks are relying less on deposits and more on Wall Street to meet their funding needs this year.

According to a new American Banker survey, the top 300 banks posted a 68.8% ratio of deposits to total assets at June 30. That is down 1.2 percentage points from December 1993 and down 5.8 percentage points from a 1990s peak of 74.6%.

In the first half, banks also issued $16.6 billion in convertible notes. according to Securities Data Co. - $8 billion in the first quarter and $8.6 billion in the second quarter.

That trend underscores the industry's recovery from the loan problems of a few years ago.

But the decline in the ratio of deposits to assets also raises fresh questions about customer erosion

By slashing deposit yields, banks "may have permanently damaged the banking franchise," said David Berry, an analyst with Keefe, Bruyette & Woods Inc.

He and others say the consequences would be felt most strongly toward the end of the next credit cycle.

A fresh outbreak of loan woes likely would hike the costs of purchased funds - especially in comparison with deposits - while restricting their availability.

Some banks might end up wishing they had maintained larger bases of insured deposits.

For now, however, many bankers say that funding is low on their list of concerns.

Buoyed by robust capitalization, clean credit quality, and sparkling profitability, many banks are tapping the market with ease.

"The problem this year is loan pricing, not funding," said George Meiling, treasurer of Banc One Corp, Columbus, Ohio.

The executive said Banc One was awash in sources of liabilities, facing "no problem" issuing bank notes; renewing credit lines while cutting standby fees.

James Kienker, chief financial officer at Boatmen's Bancshares Inc., St. Louis, said his company had turned to nondeposit funding because of uncertainty about the sustainability of loan growth.

Rather then charging full-bore after deposits, Mr. Kienker said, Boatmen's has turned to myriad alternative funding sources until it gets a better sense about the economy.

For example, the company's subsidiary banks have issued roughly $1 billion of notes, he said.

In practice, some banks are combining notes and derivatives contracts to provide matched funding for commercial loans.

To fund certain floating-rate credits, for example, Detroitbased Comerica Inc. has issued fixed-rate notes through affiliates, hedging against interest-rate risk by entering swaps contracts pledging fixed rates for floating rates.

Tanya Azarchs, an analyst with Standard & Poor's Corp., conceded that depositors still are suffering "sticker shock" from low yields, but said banks had not gone to extremes in alternative funding schemes.

She said that a goodly portion of the expanded borrowing by subsidiary banks stemmed from eased regulations that make it easier to borrow through affiliates than through the parent company.

"We don't see a huge increase in dependence on purchased money," said Ms. Azarchs.

Indeed, some acquisitive banking companies now are poised to benefit from what could be characterized as over concentrations of deposits.

Beginning in the late 1980s, interstate acquirers bought hundreds of failed and ailing banks and thrifts.

Many were situated in a broad Southern geographic expanse extending from Horida to Texas to Colorado.

Following federally assisted rescues and distress sales, many of these units were loaded with deposits but short on loans.

Now, interstate owners can either deploy those deposits into fresh loans in the reviving South and Southwest, or use the liabilities to fund loan growth in other regions - or both.

Banking companies in this category include BankAmerica Corp., San Francisco; First Interstate Bancorp, Los Angeles; Banc One; and NationsBank Corp. and First Union Corp., both based in Charlotte, N,C.

"Many large banking companies can begin taking advantage of deposit bases already built," said Ms. Azarchs.

In the meantime, smaller commercial banks are rocking along with immense deposit bases.

This reflects deep community ties and restricted market access.

The cutoff point in the American Banker survey of the top 300 banks was roughly $1.1 billion of assets.

Together, the roughly 10,400 institutions that were not included in the survey posted a hearty 83.5% ratio of deposits to assets at June 30.

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