Washington banks: a domino effect.

• Author: Gardner, Gary Robert
• Position: Bank mergers - Industry Overview

A wave of consolidations has left Washington without a major locally owned bank. It happened in Washington; could it happen in Alaska?

In Washington state, the wave of bank mergers started in the late 1970s when Pacific First National Bank became part of Los Angeles-based First Interstate Bank. Then San Francisco-head-quartered Bank of America bought Seattle First National Bank in 1983. This was followed by Old National Bank and People's Bank merging with Portland, Ore.-based US National Bank in 1986.

Security Pacific Bank, another Los Angeles-based bank, took over Rainier Bank in 1988. Bank of America and Security Pacific merged in 1991, and the two banks sold the branches and assets of Security to Boise, Idaho-based West One, moving that bank into the state. Finally, to climax this wave of Washington's bank consolidation, a bank that positioned itself as the "Last Locally Owned Independent Bank Left Around Here," Puget Sound Bank of Tacoma, Wash., became part of the giant New York-based Key Bank in 1993. And finally, US Bank moved to take over West One Bank late in 1995, and First Interstate closed the year with a bitter takeover fight between rival California-based Wells Fargo and Minnesota-based First Bank.

Before they knew it, Washington residents had no locally owned major commercial banks. None. The big boys fell like dominoes in a row, leaving only niche players. Every major commercial bank in the state is now owned by an out-of-state holding company.

Is the end of the tumbling dominoes in sight? Not in Washington, or anywhere in the Lower 48, according to Washington's director of the Department of Financial Institutions, John Bley. "There are still economies of scale to be had" in the banking world, according to Bley. "How much more can be gained remains to be seen."

Economies of Scale

The need for economies of scale, increasing pressure for returns on shareholder equity, and the liberalizing of banking and branching regulations on the federal and state level have created a formula that naturally results in what appears to be a never-ending cycle of mergers and takeovers in the banking industry.

Indeed, it appears that the trend toward consolidation in the banking industry has just begun. The shake-out in the banking community in Alaska that came as a result of the oil bust of the mid-1980s-with the loss or consolidation of more than 13 local institutions - is being mirrored all across the Lower 48, despite a rather robust economy.

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