Newspaper article The Christian Science Monitor

Local Banks Feel Pacman Effect Big Institutions Are Gobbling Up Smaller Ones, Particularly in New England, in a Trend That Affects Jobs, the Ability of Business to Get Loans, and the Mom-and-Pop Feeling of Banking

Newspaper article The Christian Science Monitor

Local Banks Feel Pacman Effect Big Institutions Are Gobbling Up Smaller Ones, Particularly in New England, in a Trend That Affects Jobs, the Ability of Business to Get Loans, and the Mom-and-Pop Feeling of Banking

Article excerpt

IF the banking industry were a lavish buffet, Slade's Ferry Bank and Trust would be a crouton - but a good one.

With only eight branches and assets of less than $200 million, it has rarely warranted attention from anyone outside this town of 17,000 - until now.

With loyal customers and rock-solid bottom lines, small banks like Slade's Ferry are sensing hot breath on their necks from large regional banks hungry to expand.

What happens when local mom-and-pop banks sell out?

Some experts say their communities are penalized. "When a big bank buys in, they are not looking out for the best interests of the community," says Dave Thomas, a bank consultant from Boston. Purse strings shift from local loan officers to those in distant cities, Mr. Thomas says, and "the issue of what the community needs is left in the dust" - including jobs and local control.

New England, with one of the densest concentrations of banks in the country, provides a case study of the impact of consolidations on small towns. Some 25 percent of the region's lenders have disappeared since 1980.

Here in Somerset, Mass., near the Rhode Island border, the story is the same: Six banks have been acquired by larger ones in the last four years. Fewer banks mean fewer options for small businesses, says Warren Heller, president of an information service called Veribanc. "The inefficiencies of competition are always better than the efficiencies of an oligopoly," he contends. "When there are fewer lenders to choose from, lenders have less cause to go after small loans."

While banks have been consolidating rapidly since the recession in the late 1980s, the Interstate Banking Bill, approved by Congress in September, has quickened the pace. The legislation gives banks the freedom to operate more freely across state lines: a move that portends the aggressive expansion of a handful of national banks.

"The interstate bill will definitely consolidate the industry further," says Kenneth Gunther of the Independent Bankers Association in Washington. As national powers look to buy, he says, medium-sized regional banks will continue to bid on small lenders, in an attempt to boost their market share and look more attractive.

About 10 truly national banks will emerge in the coming years, Mr. Gunther says, and the ranks of community lenders will thin from nearly 8,000 to as few as 5,000. Most small-business owners in this town of 17,000 agree that big banks are more difficult to work with. George Duclos, owner of a shipbuilding company here, banked with the Bank of New England for 30 years until it folded in 1988 and Fleet, a regional banking giant based in Rhode Island, took it over.

"This big new bank," as Mr. Duclos refers to it, did not retain his loan officer, and it began demanding extensive documentation about his company's cash flow, information he calls "irrelevant" to the shipbuilding business.

"It was no fun at all," Duclos remembers. "They made demands on our bookkeeping that were difficult to manage. …

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