Re "
You have identified an interesting conundrum for the larger cities, counties, and state governments — they want to bank locally, supporting their in-market financial institutions, but due to the size and complexity of their financing needs few community banks are geared up to handle those accounts.
However, many if not most, smaller units of government including villages, townships, school districts, etc. can be served well, and I believe in most cases better, by their local community banks. Most every community bank can offer all of the electronic and deposit services provided by the too-big-to-fail banks, and can combine those services with the an-depth knowledge of the problems and challenges faced by the local units of government. Over my 38-year community banking career, I can cite multiple examples of community banks stepping into situations to provide critical financing to local schools, hospitals, or municipalities that would otherwise be unavailable. And for the most part, the small units of government have responded by using the local banks in their community for their banking needs.
But to the extent that that large cities, counties and states cannot use community banks for their primary banking relationship, how can they support these local institutions? I believe there are a number of ways, and I will cite just one.
Every large city, county and state government uses a request for proposal process to solicit bids for the provision of their banking services — depository, lending, safe keeping, etc. If every RFP were to contain a requirement that bidding organizations were to include details of how and to what extent they provide services or support to the local banking community — or how they will downstream, or involve, the local community bank(s) — it would help drive a portion of that business and revenue to the local banking community.
By creating an expectation that the providers of financial services to these large municipalities are to directly support the growth and vitality of the governmental unit in partnership with the local banks, the large municipalities can leverage their business to help their area — as opposed to seeing all of the benefits accruing to the TBTF national banking organizations. For a Bank of America or JPMorgan Chase to sell participation(s) in multi-million dollar financing packages for a county or state back to the banks headquartered in that county or state, as a condition of being awarded the county's or state's primary banking relationship, seems reasonable.
Or perhaps B of A or JPMorgan, which have almost totally withdrawn from providing downstream correspondent services to smaller organizations, could be measured on the types and levels of services that they provide to banks headquartered within the city limits, county, or state, when those municipalities are in the RFP process.
In conjunction with our state association, Community Bankers of Michigan, I met with the Treasurer and Deputy Treasurer of Michigan a couple years ago, to advocate their use of this concept when next going to an RFP for banking and financial services. I continue to believe that it is a concept that has merit, and serves the needs of all involved.
Thomas R. Sullivan is the president and chief executive of Firstbank Corp. in Alma, Mich.
