Like the farmer who says, "All I want is my land and the land next to it," bankers have often said, "All I want is to be double my present size, and I'll be content." And as with the man who says, "All I want is $20,000 a year in income," the goal seems to retreat to the horizon as we reach it, and what we wished for awhile back now looks puny. There are reasons why bankers worship size. First there is ego. How often have you heard a banker say, "The bank across the street just surpassed us in footings, and everyone in town knows it. How can I show my face at the country club?" Second, we sometimes have real economies of scale. But this is frequently a moot issue, as indicated by the fact that those who reach their size goals set higher ones, with scale economies as the justification. Third, we must admit that there is a great interest in size because it allows higher salaries. A CEO of a $200 million-asset bank cannot justify paying himself much more than his peers running similar-size banks, since salary information is public. But if the bank doubles in size, this justifies a substantial increase in salaries all across the officer corps. Now there is a new reason for size. In an era of merger mania, many bank boards and top officials see bigness as a shark repellant, to keep off suitors that might take away their jobs, salaries, perks, and community status. But is bulking up a sensible way to try to remain independent? Let me ask another question: What makes a bank a tempting target? Certainly, small size is not the only lure. Another consideration has to be whether the bank is well or badly run. You run a risk in buying a bank you can't make more efficient and more profitable. The bank that builds size by buying up other banks and paying healthy premiums for them by diluting its own stock is making itself more of a candidate for takeover, rather than less. In sum, banks that pay up to grow in the hope of remaining independent may well achieve just what they hoped to avoid. If you want to remain independent, it also helps: *To have a shareholder base made up of local people who remain "sullen but not mutinous" no matter what you do. *Or to have shares spread across the country in small batches, not held by institutional shareholders now anxious to profit from merger mania. *Or to work with market makers to provide a liquid market for your stock. The idea is that shareholders who want or need to sell can do so at a fair price without waiting for the bank to be acquired. But if your bank has relied on size or inertia to protect its independence, watch out. Suppose a suitor comes in with a takeover bid that would substantially improve shareholders' wealth. Your directors and top executives can reject it only at their peril. Adverse publicity and lawsuits - against the bank and the individual board members - could result. Community banks should recognize that size and strength are by no means correlated in the American banking environment. Most of the really strong earners in the industry are community organizations. Size has never meant strength. Why then should a banker feel that in this wave of acquisitions growth is a better defensive weapon that it used to be? Mr. Nadler is a contributing editor of the American Banker and professor of finance at the Rutgers University Graduate School of Management.

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