One sign the public still wants what only community banks can provide is that so many people think setting up new ones is a good idea.

At first glance, one would expect start-ups' chances of success to be slim. Look at the hurdles they have to jump:

*The organizers have to raise a considerable amount of capital to meet regulatory requirements. Then they must watch as a good part of that capital is absorbed in start-up costs that are unrecoverable. Compare this investment with buying stock in a bank that's already operating and is selling in the market below book value, and you can see the risk the organizers are taking.

*The start-up must try to find customers in a market where others are already serving most people who want banking service. And while some established banks may be doing a poor job, it is still awfully hard to induce people to change banks unless conditions get truly terrible.

*As a result of this customer inertia, many new banks are forced to accept marginal borrowers and cater to those whose activities are likely to be more risky and less profitable for the bank.

*Government reports and requirements are as stiff for a new bank as for an established one, so the start-up operation is forced to meet the same high administrative costs as larger banks - for Community Reinvestment Act filings and the like - but with a much smaller franchise over which to spread them.

So, why are banks starting up at a fairly rapid rate?

One reason is plain and simple ego.

The board of any bank, be it new or a century old, is a place that gives its members stature. As one analyst put it to me, "If you're a garbage man, you're a garbage man. But if you're a garbage man and a bank director, you're something special."

Sometimes a bank is formed to be sold quickly at a profit. Maybe it has been able to get a particularly attractive location that some larger bank may covet. Sometimes it can cater to a group - such as an ethnic minority - that the larger institutions would like to win.

And sometimes it is formed to be a thorn in the side of the established competition so they will buy it out to end the nuisance.

But the most important reason banks are formed is that their organizers honestly feel there is a need for a new bank and that it will make money.

That's not as difficult to conceive as it may seem at first. Today, service bureaus and facilities managers are willing to handle the back office; correspondents and consultants can provide expertise; and good locations and talent are readily available, due to the consolidation and downsizing of established banks. So, it is easier to get started than was the case when these means of getting up to speed quickly were not available.

Still, those who have analyzed start-ups point to two major factors that can determine whether a start-up gets off the ground. (Many do go under in short order, absorbing all the capital the promoters have invested in them.)

First, the board's support of the bank must go well beyond the providing of initial capital. Directors must use the bank, recommend it, find new deposits and loans, and talk up the bank continually - lending their stature to the organization. In this regard, it is a two-way street. The board members get stature from being directors. And the new bank gets stature from having these community leaders talk it up continually.

Another key, in many instances, is a perception by the citizenry that the town's established banks are not providing sufficient service and personal attention.

The banks in town get larger and larger, either through internal growth or merger and acquisition. And as they do, they forget the personal touch that made them strong in the first place. This leaves a vacuum that the start-up bank is qualified and anxious to fill.

The public wants banks that respond quickly and accurately and remember that each customer is special. And if one bank forgets this, another will rise to take its place.

Mr. Nadler is a contributing editor of the American Banker and professor of finance at Rutgers University Graduate School of Management.

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