Has your banker thanked you lately? He should. Having you for a customer has probably done his stock price a power of good.

I'll explain. Last year was a bad one for a lot of things and therefore a good time for stress-testing the high-powered business models now used by the biggest banks, especially Citigroup and J.P. Morgan Chase. Such behemoths spent the 1990s pushing steadily into investment banking and won major clients in go-go industries like telecom and energy by offering a spectrum of services that included big loans and bond and stock deals. The profits were great while they lasted. But in 2001, and especially in 2002, the downside of that strategy came clear as underwriting dried up, big loans soured, and the banks' dealings with WorldCom and Enron came back to bite them. Citigroup's share price fell 26% during the first 10 months of 2002; J.P. Morgan Chase's plunged 43%.

Now look what happened to the stocks of a couple of banks that focus on lending to midsize and small companies -- like yours. Wells Fargo was up nearly 16% in the first 10 months of the year; M&T Bank, based in Buffalo, N.Y., was up about 12%. In a tough year, investors rewarded those banks and others like them for the same conservatism that may have irked you when you went to borrow from them.

But which banking philosophy is the one to bet on going forward? The question is important because it's hard to run a diversified portfolio without maintaining a substantial position in the money merchants. Financial companies -- banks prominent among them -- make up about 20% of the S&P 500 and a bigger part of our economy than ever. That's why at the end of September Fidelity's giant Magellan Fund, for example, had 24% of its holdings in financial companies. Indeed, Magellan's second biggest position overall is in Citigroup, which some people think is poised for a comeback when its corporate business returns to the health that its global consumer business already enjoys.

But that corporate lending and underwriting business is likely to keep sputtering for another couple of years. "The big companies need to deleverage and deal with their excess capacity," says Adam Compton, a San Francisco-based analyst for Keefe Bruyette & Woods, an investment bank specializing in financial institutions. He thinks that the demand from large companies for loans will continue to shrink for the next two years. The demand from smaller companies, by contrast, is expected to grow. And that may make your banker's stock a better near-term bet than the stocks of the megabanks are.

OK, it does depend a little on which regional or superregional bank you use. Compton reckons that Wells Fargo is no longer a bargain, having enjoyed a good run-up during 2002. He favors the likes of M&T Bank and City National, of Beverly Hills, Calif. He also reminds us that the current environment isn't particularly benign for any bank. Low interest rates, for example, are nice up to a point -- but when they hit the level they did in November, they start to impede the regional banks' core ability to make money on their deposits.

But the lessons of the past few years are clear. Bank stocks now behave quite differently from one another. If your bank holdings aren't diversified, they should be. And if you're planning to build a position, or add to one, you may well want to start with a bank you're familiar with.

Kenneth Klee covers finance.

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