Trade Group Wars: State Trade Groups Rocked As Dissenters Go Own Way

Once glorified social clubs for like-minded businessmen, state bank associations are suffering through an unprecedented year of discord.

Structural changes in the banking industry have prompted bitter legislative battles that have shattered the familiar unity of some state trade associations. As a result, some observers think the days when a state trade group can present a unified banking voice to its legislature may be gone for good.

In Texas, bankers association president Robert E. Harris confronted his "worst nightmare" when he found himself at odds with some of his own members and the state's independent bank group over interstate branching. He lost that battle.

"It was one of the three most difficult years I've been through," added Mr. Harris, who has 23 years of experience heading bank associations.

The industry's balkanization was most evident in states like Texas, where interstate branching was a key issue, and it's spreading.

*In Missouri, a group calling itself Concerned Bankers for Missouri's Future mounted a freelance lobbying effort outside the state's two trade groups to lobby for interstate branching.

*Colorado's two bank trade groups successfully pushed an opt-out bill through the statehouse, only to have the governor veto the measure under heavy lobbying by the state's five largest banks.

*For 25 years, California legislators have had only the California Bankers Association to look to for industry input. Now, an upstart group has emerged - the California Independent Bankers - and it's effort to block key elements of the opt-in bill written by the California Bankers has been successful so far.

*The Maryland Bankers Association thought it had reached a consensus earlier this year to merge with the state's thrift group after many of the state's small banks supported the move. One man, the CEO of the state's largest independent bank, deep-sixed the merger with a few phone calls.

Interstate branching isn't the only issue dividing these groups. Proposed deposit concentration limits, the debate over the thrift insurance fund, and the traditional one-bank, one-vote association structure are among the questions challenging associations to hold their members together.

The Colorado Bankers Association, for example, last month lost one of its largest members, an affiliate of Minneapolis-based First Bank System Inc., and the accompanying $90,000 in annual dues over its stance on branching and the association's voting structure.

Four other large banks, all owned by out-of-state holding companies, have threatened to pull out because they pay 60% of the association's dues but have less than 4% of the vote under the one-bank, one-vote structure.

Similar, if less bellicose, battles have taken place in Nebraska, Oklahoma, New Mexico, and Wisconsin.

For some, the trade group wars have a silver lining. In Texas, for example, the battle over interstate strengthened the Independent Bankers Association's state affiliate.

"Internally it made us a hell of a lot stronger because we had the opportunity to flex some legislative muscle, and we really did so," said Christopher L. Williston, president of the group.

"But there's no question that when the industry is divided it takes its toll politically," he added. "There are no winners when you have an intra- industry dispute."

And observers say the brawls of the last year are just the opening acts. The pressures on trade groups will only grow, and with them drastic changes in the trade groups' role and function.

"This year was a harbinger," said Thad Woodard, president of the Community Bankers Association of North Carolina. "There will be issues in the future that will divide us as the natural progression of banking takes place."

In an effort to avert emotional clashes like the branching fight in the future, the Texas Bankers Association last week passed a bylaw that says if a director vote does not achieve a two-thirds majority, then the group would call a special membership meeting to solicit more input.

A second vote is then taken, with only a simple majority needed to pass the motion.

"We now have a trip wire that says if we have a divided board, that signals that we have a divided membership," said Mr. Harris. "This ensures that we try again to get a consensus before we take a position."

The Texas Bankers Association's board voted 16 to 14 to oppose opting out of interstate branching last year. The state legislature later sided with the community bankers, voting to opt out.

As the traditional role of state associations - government relations - becomes increasingly difficult to play, bank associations are expanding ways of bringing value to members, outside of politics.

Once just sponsors of annual clubby gatherings, state bank associations have developed much as their members have - they offer a greater array of services in a more professional manner.

The Iowa Bankers Association, for example, has a host of corporate subsidiaries that account for nearly all of the group's annual revenue. The group runs businesses for its members in insurance, securities, and mortgages. It even has a travel agency. Of its $43 million in total revenue last year, only $1.6 million came from annual dues, it said.

"We're somewhat unusual," said Neil Milner, president of the Iowa Bankers. "Our focus is still government relations, but we realize that if we don't support a bank's point of view, then they'll retain their own lobbyist and leave us."

That happened just a year ago. Norwest Corp., one of the association's largest members, dropped out of the group over differences on a pending bill aimed at limiting deposit concentration.

Still, a number of trade group representatives said the battles of the past year may ultimately strengthen the industry.

"This year didn't weaken them, it tested them," said Jeffrey S. Owen, executive director of the banking organizations group of the American Bankers Association. "These cases test the strength and leadership of the groups. They've done a good job at getting people to the table, which is what they're all about."

Tomorrow: Part Two - An Uncertain Future.

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