If there is a singular, striking difference between business banking and that of banking for a municipality, it may be that the latter is bound by laws and by-laws, special requests for proposals (RFPs), and other checks and balances designed to ensure residents’ monies are handled with the utmost concern.
With approximately 9 million residents, New Jersey has some 565 municipalities – so many locales that even life-long residents in our small state may not recognize all of the towns’ names. These municipalities that dot the landscape from Cape May to the border of New York State need financial institutions that not only offer them products and services, but can additionally collaborate in myriad ways to “build communities.” Actual products and services range from remote deposit capture and Automated Clearinghouse (ACH), to positive pay, for example.
Noting that each request for proposal (RFP) is unique, John Nietzel, senior vice president – business and municipal banking, Investors Bank, explains that even when a town or city chooses his bank, “We have to do a lot of paperwork to bring it over. There might be 30 or 40 different accounts. And you have to get signatures from all these politicians, or school board people. I would say the cycle usually runs about six months from beginning to end. It is just the way it is; we try to make it as painless as possible. My government bankers are out there with all the necessary documents they have to sign. But, it just takes time.”
Christopher Forno, head of liquidity and government banking at Valley National Bank, says, “You are dealing with communities, and communities store Joe and Jane taxpayers’ money. And they take the responsibility very seriously. In most instances, they are legislated into how they select their banking relationship. There is a lot of rigor around establishing a banking relationship, and that is why we believe that it is crucial to developing expertise, to vest in that partnership, so that you can then build scale, No. 1, and build longevity in those relationships, on a go-forward basis.
“Yes, it may be a little more onerous to onboard a community or a government banking entity, but we believe that we have the right resources and expertise in place to make that transition as seamless as possible.”
Time-tested relationship building in the broader banking sphere is now interwoven with rapidly advancing technology that has changed how banking is conducted, enabling ease of access to information and the ability to manage funds, for example. Online account services can provide cash management, account balance reporting, alerts, account reconciliation, statements, account transfers and transaction reporting.
Robert Peluso, government banking officer, Kearny Bank, explains that his bank offers, “a comprehensive online account service that also includes ACH origination, stop payments, statements and wire transfers. An online banking platform is very important, and we have a comprehensive one at Kearny Bank.” He also mentions remote deposit capture.
Yet, he adds, “I am not just talking about products, because we don’t like to sell products. We provide solutions to what the needs are of the customer. And each government entity or municipality has unique needs.”
Banks such as Kearny may also cater to municipalities’ employees, offering free: checking accounts, debit cards, internet banking, mobile banking, bill pay and checks, for instance.
In broad terms, Elena Gallo, northeast regional vice president of government and institutional banking, Wells Fargo, says, “Folks are trying to get away from paper-based products, and moving more from a paper to an electronic solution, which is a less expensive way of doing business. We find that moving away from paper is certainly better from a fraud protection measure. And they are using the tools that, quite honestly, are most acceptable when you think about the growing tax base in the states: The millennials, and how they [digitally] make payments.”
Financial institutions have long been part of the very fabric of local communities, not only offering the practical nuts-and-bolts and professional relationships, but also lending monetary support to various projects. Investors Bank, for instance, writes, “In 2007, when the Paper Mill Playhouse needed our help, Investors was delighted to answer the call. From a banking standpoint, it was not an easy decision to make, but we knew that providing a bridge loan to help Paper Mill through a difficult time, was the right thing to do. The Paper Mill is our neighbor in Short Hills, and the effort saved a 70-year-old institution from failure, and saved jobs in the community. We are proud to be able to continue to assist the Playhouse – and ultimately the community – through additional support of more than $1.5 million through our Foundation. We have also served on the board of trustees, underwritten the Rising Stars Program for high school students, and continue to be a seasonal corporate sponsor.”
Investors Bank and other institutions often have long lists of such projects.
A State Bank?
The Murphy Administration has floated the idea of a state bank; precisely the sort of mechanism that would potentially be able to serve municipalities’ needs. Some bankers interviewed did not comment on this concept, while others did not seem overly concerned.
Investors Bank’s Nietzel says, “We started our [government] business in 2008, and we have maintained – we have kept – 99 percent of the relationships we have brought in. Why have we done that? My team is very, very good with service: they develop relationships; they have very good lines of communication. So, you get great service, good competitive pricing, and you are very involved in the community, and the people on the school boards, the people in the municipalities, appreciate that, and they appreciate the involvement we have.
“If [Governor Murphy] creates the bank, I don’t think it is going to have much of an effect on us. We are just going to continue to do what we are doing, and I think we will continue to be very successful.”
Kearny Banks’ Peluso says, “Bankers at many community banks have unanswered questions regarding Governor Murphy’s proposal for the creation of state-run financial institution. A state bank may have the potential to shift municipal deposits from a community to the state, but, you have got to remember that banks use municipal deposits to meet the credit and the lending needs of the communities they serve.
“If deposited funds are pulled out of community banks, there may be a decline in small business lending, therefore potentially limiting economic development in local communities. Community banks have the knowledge and the skills to provide lending to small- and middle-market businesses. If we had a better understanding of how a state bank would run, it would be helpful for us. We really don’t understand how a state bank would function, and what the economic impact to residents and New Jersey’s workforce would be, and what impact it would have on our financial institutions. We really need to know more about how it is going to function, and what these impacts are, before this concept progresses.”
Although not directly stated, if there is a common thread among bankers’ comments regarding serving municipal customers, it perhaps is that financial institutions are an important societal adhesive that lubricates the wheels of government. The patience necessary for building relationships, combined with banks’ technological prowess and devotion to the communities they serve, paves the way for municipalities to succeed.
With many state residents strained by high property taxes and the elimination of the SALT deduction via federal tax reform, bankers remain ever-more committed to the communities they serve – and the choice of which bank is the best fit remains paramount.
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