PHOENIX — Arizona, which prides itself on its Western heritage and values, crosses a new frontier this week when its interstate banking bill, as broad as any in the nation, takes effect.
Starting Wednesday, the state becomes a battleground for some of the nation's biggest banks and perhaps a window into the future of U.S. banking.
But the full effects of the change are not likely to be felt for several months, when previously announced mergers are completed and banks begin to compete in earnest for an expanded share of the rich and growing Arizona banking market.
By early next year, six of Arizona's seven largest banks will be owned by out-of-state banking companies, including such giants as Citicorp, Chase Manhattan, Security Pacific and First Interstate.
Smaller banking firms, based in cities from San Diego to Milwaukee, also have agreed to pay fat premiums to enter what analysts consider one of the nation's premier banking markets.
But if Arizona is about to become a financial colony of New York and Los Angeles, no one here is complaining. Most bankers and businessmen welcome the expected flow of fresh capital and competition as the new institutions vie for market share and customer loyalty.
Arizona's legalization of interstate banking merely ratifies the longstanding presence of "foreign" financial institutions in the prosperous Sun Belt state.
Out-of-state banks have been active for years in Arizona in business lending, consumer finance, mortgages and credit cards. Nearly 40% of the bank credit cards carried by Arizonans are issued by New York and California banks.
The new law allows out-of-state banks to gather deposits and offer a full range of banking services by buying existing Arizona banks.
The immediate beneficiaries will be shareholders of acquired banks, who will be reaping rich rewards.
Newspapers, radio and television stations will also profit, carrying thousands of dollars worth of bank advertising trumpeting new ownership ties and offering special deals to lure customers away from their current banks.
In their promotional campaigns, the New York banks, Chase and Citicorp, will stress their global services and credit cards, the California banks will push their electronic teller networks and account packages, and the Arizona banks will emphasize local ownership and personal service.
"It's going to be a lot of fun down here, a lot of action," predicted Norwood W. (Red) Pope, chief of marketing for Valley National Bank, Arizona's largest bank and the state's largest remaining independent.
Valley National last week announced a giveaway deal for new certificate of deposit buyers. For every CD of more than $5,000, depositors will receive a gift ranging from a clock radio to a home security system.
More fun and games are sure to follow.
Bankers and analysts expect consumers to benefit from lower loan rates and higher interest on savings as banks fight for market share.
But many bankers warn that such price wars will be short-lived because they are ultimately damaging to the banks.
"There will not be an out-of-control struggle for market position. If there is, we're going to fight for our share," said Richard J. Flamson III, chairman of Security Pacific in Los Angeles, which agreed last year to pay $480 million to buy Arizona Bancwest, parent of Arizona's third-largest bank. "But I don't see that taking place. It never works. And it costs the shareholders a lot of money."
Rapid Growth Rate
Arizona is attractive to out-of-state bankers for a number of reasons. It has been one of the nation's fastest-growing states for two decades, and the migration and economic growth rates show no sign of slowing.
It is home to many middle-size companies whose business is profitable to banks. Arizona annually attracts thousands of vacationers and well-off retirees, who spend liberally at the state's many golf resorts, campgrounds and hotels.
The state is dominated by a conservative, pro-growth business community that is more than happy to welcome out-of-town companies and out-of-state capital.
To top it off, the state Legislature last year passed an interstate banking bill that allows the purchase of Arizona banks by banks from any other state, with virtually no restrictions.
Only Alaska and Maine have laws as liberal, but those states are not considered hot banking prospects.
Nearly 40 states have now passed some version of interstate banking legislation, but most restrict cross-state mergers to a specific geographic region.
California's recently enacted bill allows regional mergers from 1987 until 1991, then full nationwide banking. But it limits acquisitions to those states that allow California banks to do business in their home markets.
Most bankers acknowledge the inevitability of coast-to-coast banking and will be watching Arizona closely to see how the major institutions behave there and whether smaller community banks will survive the competition.