Community banking in Vermont has not reflected the state's tranquil image in recent years.

While the state's bankers were spared the worst of the problems elsewhere in New England, some were buried by scandals involving insider loans and other wrongdoing. Two have been sent to prison so far.

But the worst is over, according to Vermont's banking and insurance commissioner, Elizabeth R. Costle.

No Bank Failures

"There are still a few people who haven't been tried, but the examiners have been all over their banks, so I don't think we'll find any more nefarious doings," she said.

Despite the problems - one of the banks was on the brink of disaster - Vermont experienced no failures and just one consolidation during the troubled times.

Ms. Costle attributes the industry's relative stability to the state's environmental laws, which put a damper on the rampant real estate speculation that now haunts many other New England banks.

"The laws, and state environmental board that reviews real estate developments, kept the |lemming effect' at a minimum," she said.

According to state banking data, "other real estate owned" by Vermont banks, valued at $143.8 million in 1991, has fallen by more than $20 million.

"It's still high, but there's a feeling that we're starting to rise up off the bottom," said Timothy Y. Hayward, president of the Vermont Bankers Association.

Over the last few years, the banks' loan-to-deposit ratios have remained stable but high - the statewide average last year was 85.26.

"We've traditionally been quite high," said Mr. Hayward.

"Our banks are all community banks, and they're always been heavily loaned out."

Recovery Anticipated

Currently, assets at the state's banks are in a slight decline.

But the climate for loan demand is likely to improve, analyst Sara Johnson of DRI/McGraw-Hill predicted.

According to her analysis, Vermont will rank among the top 10 states in employment and income growth by the middle of the decade.

She expects a recovery in manufacturing employment this year.

Also important to the state's banking future is recent legislation limiting the liability of banks for hazardous waste cleanups.

"The bill was very important to us," said Mr. Hayward.

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