I once asked a correspondent banker at a New York money-center bank how it competes against community banks, with their loyal customers.
"It is simple," he replied. "The customers do not even consider moving their accounts - that is, until they need international banking expertise for some transaction or another. Then they call us. And this is our wedge. Once they buy one service from us, we can slowly dig in and take away the entire account if we want it."
I repeated that conversation to a New Jersey bank CEO I knew well. He said: "We know this. That is why we have one person on our staff who knows something about international finance. It is enough to do the job and keep the wolves from the city at bay."
What kind of international finance services do customers want from their local banks?
No. 1 on the list is a pack of foreign money or travelers checks. These don't usually come from major banks anyway; they are provided by specialized foreign exchange dealers who inventory many currencies and buy and sell them for a fat spread.
The community bank's international officer merely calls up and has the currency sent over, unless it is a common one such as the Canadian dollar, the pound, or the euro, of which the bank holds a modest supply. Travelers usually pay the local bank about as much as they'd pay the dealer.
As for small businesses, they generally need to sell the currency they receive from abroad or buy what they need for payments. The international officer can offer this for a modest or zero spread, as an accommodation to the good local customer.
Sure, some major banks make good money by holding and trading positions in foreign currencies. The international people at First National State in New Jersey (which became the nucleus of Wachovia's operation there) once told me they earned something like 40% of the bank's entire profit one year.
But such profits involve huge risks that no community bank would take. They try to balance their foreign-currency positions (apart from the small convenience position in popular currencies) down to zero every day or week, so the international officer can sleep at night.
What else do business customers want in the international field? They want documentation: letters of credit and acceptances.
A properly trained international officer can handle these easily. Some brag that because they know how each transaction is progressing, they can do a better job than larger banks, which sometimes find it a major hassle to trace what is going on.
Finally, foreign currency loans. Most community banks avoid making them - but they can arrange them, to retain customers who would otherwise go directly to a larger bank.
In short, the danger of losing the customer who suddenly needs some international finance services is overplayed. It can be parried, at little cost.
Next week I'll examine another popular bugaboo, the big bank with brokerage services right in the lobby. My conclusion: Don't let it keep you up nights.
Mr. Nadler, an American Banker contributing editor, is a professor emeritus of finance at Rutgers University Graduate School of Management in Newark, N.J.
