The leading banking institutions across America and across the world have built their businesses and their reputations on their ability to serve all customers, big and small. When dealing with government entities, both as depositors and borrowers, the same thing holds true. Government banking involves working with all types of customers that have different kinds of needs.
“They certainly have different guidelines that they have to follow,” says Tim Kreitzer, principal relationship manager with Wells Fargo Bank in Houston. “Sometimes they are more demanding of a relationship manager’s time because of the audits they have to go through, the budget process and the state regulations.”
Smart Business asked Kreitzer about the differences between traditional and government banking and how a bank can better serve its governmental clients.
How can a bank start a government banking program?
The opportunity that exists within a group is greatly benefited by the strategic partners the bank already has in place. In Houston, treasury management is a wonderful partner to work with in regard to government banking. When cities and school districts see the program, they’re just amazed at what they can do with it. public finance has the ability to be a lead-in with the entities, and it can ease concerns over bond issues. Institutional Brokerage is very important as well. We have these strategic alliances already built in so it’s kind of a natural fit to utilize them. And it’s important to start with a great team from the beginning.
What’s the key to moving forward when just starting out with a government banking program?
The key is to understand the industry and that starts with understanding the entity. What does it do? Who are the decision makers? How are their roles impacted by changes in accounting rules or changes in state legislation? You have to account for things a little differently when you’re a city. The co-mingling of funds is highly discouraged. You don’t want to put one bond issuance with money from another bond issuance, because it would get a little complicated as far as determining if the proceeds were dispersed properly. On the financial side, when they’re looking to borrow money, is it a tax-exempt deal or is it nontax-exempt? And that’s where public finance would be able to help out.
Is government banking conducted on a larger scale than traditional banking?
One of the great things about our market is that we have very small entities tucked away in the corners of the market and there are large, complex entities as well. We’ve got them on both sides. It’s all a great revenue-generating business and the word-of-mouth that comes back when you work well with an entity is very rewarding.
What is the biggest difference in need between government banking and other types of banking?
Most of it has to do with understanding what people involved in government banking are required to do, how they’re required to do it and when they’re required to do it, because their accounting rules are different. Their balance sheets look different.
We’re used to looking at an entity in regular banking and seeing how much money it’s making. In government banking, you have to make sure that it’s allocating its resources in the proper channels. It is not necessarily making money. You have to look at a budget that says ‘income equals expenses,’ not necessarily one where you’re showing a profit, which is the way it should be.
And with accounting and auditing procedures, you have to be responsive because it will have auditors in annually as required by state statute and you have to be responsive to those needs. When it needs confirmation of collateralization or balance or interest rates, you need to have that information available in a timely fashion.
Is government banking regulated by state or federal government?
This is something that’s statewide and so we keep an eye out for legislative changes. Texas legislation is currently in session so by June there will be new laws that impact municipalities by the fall, so we need to stay on top of that.
Selling depositories is a sales cycle that can last between one and five years. Our local management recognizes that. We have to become a resource to an entity that might not be our client. You need to make sure you do it right. There may well be an opportunity for business with them down the road.
TIM KREITZER is principal relationship manager with Wells Fargo Bank in Houston. Reach him at (713) 383-1608 or firstname.lastname@example.org.