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Banking Bright Spot: California's Independents

October 07, 1990

"Banks at the Barricades" (Sept. 23) astutely reveals a disturbing picture of the declining competitive position of the U.S. banking industry.

There is a segment of the commercial banking industry that has a very bright future: the smaller "independent" banks.

There are 480 commercial banks in California, with combined assets of $324 billion. Almost 80% of these assets are owned by the state's 10 largest banks, each with average assets of $25 billion. The remaining 470 banks each manage average assets of $160 million. It is this larger group of smaller banks that are referred to as independent banks.

California's independent banks have a bright future for several reasons:

* Community-based independent banks are better equipped than the branch systems of major banks to provide high-quality customer service to a market consisting of small businesses, professionals and upscale individuals.

* Through widespread profit-driven centralization of lending staffs and the continuing consolidation of branch facilities and the automation of day-to-day services, the major banking institutions are enhancing their overall profitability. However, in doing so, they are harming their ability to compete with independent banks for banking relationships with, again, small businesses, professionals and upscale individuals.

* In this environment, California's independent banks are thriving. In 1989, the primary capital of all California banks as a percentage of total assets was 8.15%; this compares to an average primary capital ratio of 7.54% for California's 10 largest banks, and 7.93% for all U.S. commercial banks.

HARRY M. GAGE

The writer is a Pasadena-based consultant to independent financial institutions.

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