Merger mania likely to continue at financial institutions in 1997.

Consolidation was the main force shaping L.A. banks and thrifts in 1996, and that force is expected to continue in 1997.

Some of the area's medium-sized institutions could well become takeover targets next year among larger, out-of-state banks and S&Ls in search of an immediate presence in Southern California.

Small, community banks (those with assets of less than $1 billion) also are likely targets. Such banks are relatively inexpensive to buy for both local and non-local banks.

And don't forget the role of Congress, which may consider legislation to merge the current charters for banks and thrifts, melding the two types of institutions into one.

L.A. was left with no major locally based banks in 1996, when Wells Fargo Bank acquired First Interstate Bancorp. The Wells takeover was the largest of 28 California bank mergers in 1996, as of mid-December, according to the California Bankers Association.

California still has 297 banks with assets of $500 million or less - nearly half of which are in the five-county area of L.A., Ventura, Orange, Riverside and San Bernardino counties.

With so many smaller institutions still in the picture, the number of mergers and acquisitions among L.A. County banks could be comparable to that of 1996, according to David Burgess, vice president of policy analysis for the CBA.

Activity on the thrift level isn't likely to approach that of the early 1990s when local S&Ls were snapped up largely in response to the S&L crisis. But analysts note that one or more L.A.-based thrifts could be snapped up in 1997.

Two thrifts often cited as attractive takeover targets for out-of-state banks are Chatsworth-based Great Western Bank, with assets of $43.7 billion in assets, and Glendale Federal Bank of Glendale, with $14.5 billion.

"These thrifts all have good branch systems in California, said Kathy Wedeking, a spokeswoman for the Western League of Savings Institutions, industry association of thrifts in California, Arizona and Nevada. "If someone wanted to come into California and acquire a good system, that would be the way to do it."

The remaining thrifts will continue to diversify their lending activities, moving away from the traditional reliance on mortgage lending to become more bank-like through commercial lending.

Banks are also diversifying their activities, following a Federal Reserve Board vote this month allowing banks to collect up to 25 percent of their total revenues from securities sales and underwriting. The prior limit on securities-related revenues was 10 percent of total revenues.

The blurring line between thrifts and banks will be reflected at the national level next year, as federal legislators start to tackle the biggest merger of them all - the merger of the two separate charters that currently exist for banks and thrifts.

The Treasury Department is now conducting a study, due out next March, on financial modernization for the country. One of the issues the study will address is the unification of bank and thrift charters.

The unification will eliminate any remaining distinctions between the two types of institutions, creating a nationwide body of financial organizations operating under one set of guidelines.

The unified group would be insured by a single entity that combines the current Bank Insurance Fund, which insures banks, and the Savings Association Insurance Fund, which insures thrifts.