On Sept. 12 I suggested in this column that community banks have little to fear from their inability to match the services of money-center institutions in international finance.

Small banks' paucity of international services probably hasn't cost them much business. What has is the failure to use the talents and knowledge they do have.

Dan R. Heldridge of Coergon, an international banking software company based in Boulder, Colo., elaborated on that point. Mr. Heldridge, a former international banker with Citibank and National Westminster Bank, wrote:

"I have often pondered the role of small banks in international trade. On the whole, I would have to agree with your bank CEO friend's comments regarding his ability to provide global services.

"The occasional foreign exchange transaction and letters of credit can be accommodated without undue difficulty. But his remark that he has|never' lost a relationship due to insufficient international expertise requires a footnote: You can't lose what you've never had.

"One disturbing issue was his solution that customers pay with a sight draft and finance locally.

"During the 1980s, when U.S. interest rates were in their teens, I recall customers getting very favorable financing from Japanese and other suppliers. Depriving customers of supplier financing, and possible savings, is not always prudent.

"Your friend also stated that he did not want the occasional $50,000 90-day paper that arises from an international trade transaction, and that a large bank won't bother with it. Not true! There are good fees and discounted interest to be had.

"The trick is to get that kind of paper with some kind of volume or regularity, so that it can be quickly sold to banks or investors. (Forfeiting houses can be a good source.) This, of course, requires pursuing customers that an individually or collectively generate those volumes.

|Private-Label' Service

"And here is the underlying problem with your friend's argument. I believe many small banks are better positioned than they realize to offer global services - but out of fear and lack of knowledge, they don't pursue them.

"Money-center banks are providing competitive foreign exchange rates to their correspondents, and letter-of-credit services can be provided on an outsourcing or "private label" basis, so customers never see the servicing bank's name.

"With these resources, the only missing element is service. Local banks generally know their customer's business, and therefore are well positioned to help them run their domestic as well as international business.

"Instead of hoping you will |never' lose your accounts to the money-centers, why not actively pursue the business you don't have?

"Trade finance is very service-intensive, and requires close working relationships with customers. Backed by the services and global networks of larger banks, small banks can take a front-line role in providing global services."

Helpful Pamphlet

Bankers motivated by this letter may be further enlightened by a new pamphlet from the Federal Reserve Bank of New York.

"The Basics of Foreign Trade and Exchange" first goes into why nations trade and the free trade versus protectionism controversy - both hot topics today.

Then the 48-page booklet gets into bread-and-butter questions of currency trading and exchange and the role of central banks in the foreign currency markets.

The book, written by Adam Gonelli of the New York Fed's research staff, is free for classrooms and single copies. It costs $1 otherwise.

Mr. Nadler is a contributing editor of American Banker and professor of finance at the Rutgers University Graduate School of Management.

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