The merging world of banking.

• Position: Interview with KeyBank of Alaska President Michael Burns and National Bank of Alaska President Richard Strutz - Interview

Merging is the new trend in banking. The big are getting bigger. The middle-of-the-road are becoming a dying breed, and the small are thriving. What's happening in Alaska? And how does it affect the consumer? An interview with Michael J. Burns, president of KeyBank's Alaska operations, and Richard Strutz, president of National Bank of Alaska, the state's largest locally owned bank.

ABM: Some speculate that maintaining separation between the banking, insurance and securities investment industries is obsolete thinking. The Citicorp/Travelers deal creates a mega-organization that combines banking with the insurance and securities businesses on a worldwide basis. Is electronic technology making this movement the wave of the future?

BURNS: The Citicorp/Travelers Insurance group merger may be more indicative of what the trends are than just the bank-to-bank mergers of Bank of America/Nations Bank and First Chicago/Bank One. The tip of the iceberg is that Citicorp/Travelers is "large bank" and "large insurance." Technology certainly is a factor in this transition, but probably more important is the archaic nature of laws and regulations we're dealing with. These regulations look especially archaic when butting heads with today's technology. There will be bank holding companies and financial services companies with a number of subsidiaries, but we'll also see strategic alliances develop in all of these areas. Some financial services will be offered by the banks themselves, some through subsidiaries, and some through these alliances.

STRUTZ: I don't think that electronic technology is the issue. Although I think that electronic technology makes everybody's business a lot easier to transact, the motive for this merger, as stated by the press, was the ability to cross-sell each others' customers - in this case Citicorp selling Travelers' customers and vice-versa. Travelers specifically wanted access to the foreign markets while Citi wanted access to insurance powers.

ABM: Do we have any experience dealing with the potential failure of an institution the size of the contemplated Citicorp/Travelers merger? For example, the joining of BankAmerica and Nations Bank spreads across America from Atlanta to Anchorage and has been characterized as the watershed event in the nation's banking industry.

BURNS: The simple answer is no. There is no precedent because we've never had organizations of that size in this country. The banking industry has never been healthier. Capital levels, earning levels, and return on equity are all at record levels. It's a very healthy industry. There haven't been any bank failures in the last couple of years. There is protection in the system as these geographically and economically diverse banks are based upon that very diversity. Alaska banks are also a part of the national change. Bank of America and KeyBank, which are the only multi-state banks in Alaska, have the strength of other regional economies protecting them.

STRUTZ: The simple answer to the first question is no, we have never had any organization of this size in the financial service industry fail. The closest probably was Continental Bank; I think that was $35 billion to $40 billion dollars, so less than one-tenth of the size of this combination. What makes it a watershed event is that it now forms truly a national banking franchise, controlling approximately 8 percent of the nation's deposits. You didn't bring this out, but a point in fact is that financial institutions are restricted by federal law in that no bank can exceed 10 percent of the nation's deposits.

ABM: Twenty years ago we hardly had any banks with branches...