Banking Has Changed: Make The Changes, Your Banker, Work For You

by Jack Frame, VP CoreStates Bank

Banking…after 50 years of artificially  induced stability, this heavily regulated industry was jolted in the  80s by a number of events which will continue to define it. Mergers, layoffs, outsourcing, and reorganizations will continue to characterize the industry for at least another generation. Also, while automation and incremental deregulation during the 70s and 80s brought us 24-hour banking via ATM machines and the Internet, old fashioned customer service has suffered. Reliance on long term relationships with a known banker has evaporated. Decision making has become far more remote today than ever before and the ultimate underwriting decision makers may have less experience in this specific marketplace than ever before.

Make the Changes Work for You

Get Competitive Bids.
You may take certain comfort from having a 25-year relationship with your Banker, but does he/she share the same perspective? Chances are that the people managing your account today have a much shorter time horizon. It is unlikely that they will remember your sacrifice of five years ago when the roof caved in and you risked it all to salvage the business. All of which is to say, “Get competitive bids on your banking.”

Why Debt? 
Are you aware that trade discounts almost always exceed the cost of the debt. That there are special situations in which the cost of debt is less than your opportunity cost for your own capital. The EDA (Economic Development Agency), for example, has programs designed to encourage development in certain locations, such that the cost of Agency debt is less than what you can earn on your funds with a competitive money manager.

Get to know the bank’s menu. 
Most bank customers think they know their bank, but in fact actually know only a very small percentage of that bank’s total menu. Your banker should be providing you, regularly, with updates on a variety of fronts, even when unrelated to your current relationship. If a special bond issue comes out from the State which might serve you or firms like yours, you need to hear about it. If the Deutschmark – Dollar parity or Bankers Acceptance Rates shift in a way that might be favorable to your business, you need to hear about it even though your only immediate relationship involves a mortgage on a warehouse down the street. You should be hearing regularly about changes in cash or check collections trends that could speed up your cash receipts (and slow down the debits to your account.)

How many people do you know in your bank? 
You should be comfortable that more than one person knows your business well. That a team is available and knowledgeable on your account. If “Jack” is not available, do you know his regional or department manager sufficiently to telephone with regard to a daily operating problem?  –You should be.

Who makes the decisions and up to what level?
You should know whether your bank today is organized with a Credit Committee or, alternatively requires a chain of signatories to commit a loan.You should know who would be required to sign any facility of the size you likely require.You should know how accessible they might be when you are offered an unusual opportunity that requires quick action.

Are You Getting Your Due from Your Banker
Are you being visited by or have you met on a quarterly or semi-annual basis with your banker?

Has your banker made you aware of the bank’s menu in areas that are not currently part of your relationship; e.g., investment services, international services, trust services, foreign exchange, bankers acceptance financing, special bond financing programs available from the State, Export/Import Bank Financing programs for your overseas customers, cash management studies, etc.?

Are you on you bank’s mailing list for Economic newsletters, industry-specific briefings, annual and quarterly reports, product announcements, and other publications? Even if you have little immediate interest, your banker should keep you informed.

Are you getting monthly analyses from your banker detailing not just the debits and credits to your accounts, but details of the profitability of your account to the bank. Most large banks do generate such monthly renditions by which they are able to determine the net value of your accounts with the bank. A detailed review of this statement will almost always reward you. Moreover, many of the terms on your analysis should be regarded by you as negotiable.

Does your banker know your industry? Has your banker suggested takeover targets or non-bank sources of finance which might now, or in the future, improve the capitalization of your firm?

Have you considered using your banker for credit information?  In non-standard situations (especially in international sales, for example) your banker is in a position to assist you — most often for free.The large banks have well -established International divisions, which regularly make inquiries of their foreign correspondent banks regarding companies in those same foreign markets.