Already considered a glutted, highly competitive banking market, Philadelphia may soon become the scene of an even fiercer battle for customers.
The spark that observers predict will ignite this all-out war is a bill signed two months ago by Gov. Richard Thornburgh allowing commercial banks to expand operations statewide. Confined for almost 50 years to home-office and adjacent counties, banks now may branch two counties away from their headquarters.
The new law also permits bank holding companies to own more than one bank. Under a phased-in statewide banking plan, a holding company may acquire up to four banks in the first four years -- and another four in the next four years. After that, the Commonwealth of Pennsylvania is wide open to ''a virtual free-for-all,'' says a local bank analyst.
Industry watchers say the recent legislation could have a more pronounced effect on Philadelphia's banking climate than on any other region in the state.
In the first place, Philadelphia is a vast market which, despite its decline as a manufacturing center, has a host of healthy medium-sized industrial companies that outside banks would greatly love to have as clients.
''This is where the money is,'' boasts Richard Ravenscroft, president of Philadelpia National Corporation.
Enhancing its allure to the acquisition-minded, Philadelphia has a slew of banks, none of which is large enough for a city its size. The biggest, Philadelphia National, ranks only 35th in the US in assets. This, analysts say, makes the Philadelphia institutions susceptible to takeovers by larger banks.
In fact, there are two banks with more resources -- Pittsburgh-based Mellon National Corporation and Pittsburgh National Corporation. Mellon, ranked 15th nationwide, has triple the assets of Philadelphia National, and Pittsburgh National, in 31st place nationally, has almost twice as much in assets as either Provident National Corporation or Fidelcor Inc.'s Fidelity Bank, both in Philadelphia.
So far, the Pittsburgh giants have been quiet about their growth plans. But that silence may be the calm before the storm. When the waiting period is over, says one banker, ''the Philadelphia banks had better watch out.''
Two targets mentioned frequently are Provident and Continental Bancorp, both premium performers compared with their Philadelphia peers.
Another conceivable attraction to new entrants is Philadelphia's status as the wholesale clearing center for the Third Federal Reserve District.
''Other institutions will acquire banks here to have a direct representation in our stock, bond, money wire, and Federal Reserve check-clearing structure,'' says Mr. Ravenscroft.
Philadelphia's electronic funds transmission, he believes, ''is superior to Pittsburgh's, which is in Cleveland's district.''
Moreover, Philadelphia is seen as a tempting deposit base for money-center banks. Once interstate banking barriers are lifted -- a move insiders predict will be made well before Pennsylvania's statewide system is phased in -- Philadelphia could be among the big New York banks' first hits.
''I see them swallowing up Philadelphia's major institutions to get a pure play in the regional middle market,'' forecasts C. Edward Hodges of Janney Montgomery Scott.
Anticipating these incursions, the city's major banks -- Philadelphia National, First Pennsylvania Corporation, the Girard Company, Fidelity, and Provident -- are planning to shore up their present share of the market and in some cases, to expand into other regions, though they are keeping mum on specifics.
Philadelphia National is expected to take advantage of its huge correspondent network linking it to some 800 smaller banks. Perhaps the most ambitious bank in the city, Philadelphia National readily concedes that, in Mr. Ravenscroft's words, ''The city needs more banks of a national size and we plan to be one of them.''
Girard has indicated it wants to cultivate relationships as it franchises its ''George'' automatic teller and pay-by-phone system to smaller banks.
Still, most Philadelphia banks have modest expansion strategies. ''We're not going to be galloping around the state,'' said Provident president Richard Boylan.
Philadelphia banks are being careful not to fritter away advertising dollars by advancing too far west. And Pittsburgh, with considerably fewer middle-market accounts than Philadelphia, is not exactly a juicy target.
Financial scars are also curbing some Philadelphia banks' appetites. Most of the banks became superexpansionary in the early 1970s and thus were hurt, to varying degrees, by the recession. Most had sizable real estate exposures, some entered a variety of nonbanking businesses, and a couple jumped into national and international lending.
First Pennsylvania, for example, was damaged so badly that it had to be bailed out two years ago with a $500 million loan package. It now is concentrating on survival, not acquisitions.