For over a decade Gerald Lipkin, chief executive officer at Valley National Bank in Passaic, N.J., has paid a yearly visit to the PhD/MBA class I teach at Rutgers University.

I keep asking him back because the students are always enthralled with his comments. And if you were sitting in this classroom for the three-hour session, you would leave with renewed confidence in the future of community banks in America.

Mr. Lipkin starts each visit by telling the students that much of a career is luck, being in the right place at the right time. But he always adds that plain old common sense is one reason that his and other community banks survive and thrive.

Valley has reached close to $7 billion of assets through mergers and internal growth, but still operates as a community bank. In fact the main reason for its success — and it is one of the most profitable banks in the nation — is personal service. Loans are made by humans, not credit scoring algorithms, and any potential borrower of significant size can see Mr. Lipkin himself to initiate the credit process.

In a world of dot-coms and big conglomerates, community banks remind customers that a bank is people, not a series of computer screens and mouse clicks.

Of course speed is of the essence in local banking — and local banks can provide it. Mr. Lipkin told the class about a customer in the appliance business who had an opportunity to buy two trailers of air-conditioners at half price because a competitor had gone bankrupt. The customer called Mr. Lipkin at 7 a.m. to ask for a loan to cover this purchase, and the loan was approved by midmorning.

But speed need not mean laxity. Mr. Lipkin says Valley will almost never lend to someone who has gone bankrupt, unless there is an unusual story to explain why this was an exception in the borrower’s credit history.

And Mr. Lipkin laughs when customers with outstanding loans come in and say, “The other bank is willing to settle with us at 60 cents on the dollar. Will you go along?”

Valley’s answer: “You borrowed a dollar. You will return a dollar.”

As for Internet banking, Mr. Lipkin says it will never replace traditional community banks.

He tells of Valley’s experience with online mortgage origination. The potential borrower fills out the forms on a computer and gets the terms and rates established online. All that is left is to click the button for “submit.”

Not a single customer has ever pushed that button, Mr. Lipkin says. A customer making a commitment as important as a mortgage contract wants to talk to a real person and make sure that no better alternative exists, he says.

So much for granting mortgages without human intervention.

What about competition in the loan market from the Wall Street giants? Mr. Lipkin tells of a conference at which a Wall Street lender announced that his company was making smaller loans to woo away the community banks’ business.

How small a loan was he willing to make? “Why, we will go down as low as $20 million,” this lender said.

Obviously, his firm is not competing in community banks’ league, Mr. Lipkin observes. I am sure other community bankers will agree.


Mr. Nadler, an American Banker contributing editor, is a professor of finance at Rutgers University Graduate School of Management in Newark, N.J.

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