In early 1985, when regional interstate banking laws were being considered in Middle Atlantic and southeastern states, protectionism was the central issue in the debate. Proponents of regional interstate banking saw it as a safeguard against the day when passage of a national law would enable big out-of-state banks to dominate local markets.

Skeptics protested, however, that regional interstate banking would hurt small community banks. Those institutions, they contended, would be "gobbled up" in the rush to consolidate.

The success of interstate banking, at least in this region, indicates that those concerns were largely unfounded. The "gobble-up" theory no longer exists.

The regional banking concept has worked so well, in fact, that both Maryland and Virginia are ahead of schedule for moving on to the next stage -- national interstate banking.

In Tennessee and Kentucky last week, Sovran Bank signs were unveiled at 108 branches as community leaders and customers celebrated a merger between Norfolk's Sovran Financial Corp. and Commerce Union Corp. of Nashville. With its entry into Appalachia, Sovran has established Nashville as its base for expanding into yet another region.

In the two years since passage of Virginia's regional banking law, Sovran has followed an aggressive merger course, buying banks in the District and Maryland. With assets of $20 billion, Sovran has become what is known in the industry as a super regional. Only North Carolina's top three bank companies -- NCNB Corp., First Union and First Wachovia -- are larger in the Southeast interstate banking region, which includes Virginia and Maryland.

In Maryland, meanwhile, regional interstate banking has worked so well that key members of the General Assembly are prepared to introduce legislation that would trigger the state's conversion to national interstate banking. "I think there's going to be a groundswell in the House" for a trigger, predicts Del. Casper R. Taylor (D-Allegany). "Unless somebody can give me a downside, it's hard for me to see why we shouldn't go to national interstate banking."

Margie Muller, Maryland's banking commissioner, takes a similar view. "My position on a trigger is that it certainly wouldn't be harmful at all," says Muller.

In recommending a phased entry into interstate banking three years ago, a committee appointed by former governor Harry Hughes estimated that it would take at least four years for the state to prepare for national banking. A healthy economy and a state banking industry apparently strengthened by regional reciprocal banking have substantially reduced Maryland's timetable, lawmakers believe.

Recent national surveys showed that Maryland banks are financially strong, as most received ratings of superior or excellent.

Interstate banking, according to Taylor, has "created more consumer services, more competition and, on the plus side, has created more capital in the state. As long as this trend is producing pluses for the Maryland economy, let's not stymie it.

"If we hadn't already let in two of the Broadway monsters, it would be a different thing," Taylor added, referring to Maryland's decision to permit New York's Citicorp and Chase Manhattan Corp. to enter the state under limited conditions.

Chase Manhattan and Pittsburgh's Mellon Bank received permission to bank in Maryland after agreeing to take over troubled state-chartered savings and loans. Citicorp received the right to open a limited number of branches in Maryland after agreeing to open a credit-card processing facility in the state.

Look for a legislative proposal in the next session, nonetheless, that would give Citicorp full banking privileges in Maryland. Approval of a national interstate banking law by Maryland would allow Citicorp to expand in the state. Nonetheless, the House Economic Affairs Committee is prepared to renew its support of special legislation for Citicorp after an unsuccessful attempt last year.

"It's inequitable to keep Citicorp on an unbalanced playing field, so to speak," Taylor asserted.

Still, there is little evidence indicating that Citicorp or any other money-center giant is eager to expand in Maryland. Recently announced reductions in personnel and branch operations at money-center banks, coming in the wake of lower earnings and problem foreign loans, have cooled interstate banking fever among them, many observers point out. Moreover, the relative strength of Maryland banks and a stiffer competitive environment in the state may have made acquisitions more difficult for out-of-state bank companies. "That's probably why Maryland hasn't seen an assault by the big North Carolina banks," observed John Bowers, executive vice president of the Maryland Bankers Association.

It's still possible for a big bank company outside the region to buy a small Maryland bank just to establish a presence in the state. But it would be extremely difficult to buy a larger Maryland bank today without paying an enormous price and seriously diluting earnings. Not only are Maryland's regional banks stronger and able to compete with the likes of Citicorp, Chase, Mellon and Virginia's Sovran and Signet banks, but MNC Financial, the state's largest, also is close to achieving super regional status.

With assets of $16 billion, MNC can be expected to expand into Middle Atlantic states that have separate reciprocal agreements with Maryland. It almost has to if it expects to compete with Sovran and North Carolina's Big Three. Indeed, opening the way for Maryland banks to expand outside the Southeast region may be the only justification for a national trigger at this stage.

Regardless of Taylor's rationale, he has yet to hear from the state's powerful banking lobby. "We have not formulated an official position yet," says Bowers. "I think {a national banking proposal} would require very close evaluation, and I think the real determinant will be, is it consistent with what's in place and how a trigger would impact on that."

Still, making the switch to national interstate banking appears to be inevitable in Maryland.