Military banks make exceptions in order to serve our bravest

Northwestern Financial Review, Jan 1-Jan 14, 2004 by Dullum, Justin

This is part one of a two-part look at military banks

Our military appears to run on a blended fuel of human will and money - and it's a gas hog. Headlines declare $87 billion funding packages. We read about men and women dying each day in war. Underneath the puzzling headlines, however, lay the more elusive details of how our military operates. In there is the story of military banks, which grapple with the same issues as their civilian counterparts in addition to serving the unique needs of our fine soldiers.

If you ever find yourself strapped for cash on an aircraft carrier, fear not. They have ATMs. The military even has its own closed ATM network - the Armed Forces Financial Network. Military banks are not required to use the network, which serves both foreign and domestic U.S. military installations. The network competes with civilian networks. Look for the AFFN logo on an ATM near you.

The AFFN is one example of how military banks often do business in the blurry area separating them from civilian banks. For example, civilians living near a base are welcome to bank at a military bank. Since September 11, 2001, however, security on bases has tightened and military banks lost civilian customers who suddenly faced increased scrutiny from armed military police upon entering the base. Losing customers is typically a bank's own fault, but not if that bank serves the military.

My observations on this topic come from a long conversation with Henry Neill, Jr., executive vice president of the Association of Military Banks of America. His association is comprised of 40 banks that serve 120 military bases in 40 states. Each base is allotted one bank and one credit union, which have their own association. These institutions are regulated by the same agencies as civilian banks. Military banks must be FDIC insured, for instance. They are usually subsidiaries or branches of civilian banks. The largest is Bank of America Military Bank, which has offices on 40 bases.

Military banks have drive-ups, web sites, tellers - from a service standpoint they are no different than civilian banks. They compete with banks that neighbor the military institution. (Soldiers are free to bank wherever they choose.) They are, on paper, pretty much like any other bank. The practical differences, however, are significant.

For example, credit unions and banks co-exist very peacefully on military bases.

"I've never seen one issue divided along the lines of credit unions against banks," said Neill. "The unstated mission for all of them is to take care of the troops, who bear a heavy burden for the country."

There are other issues created by building a bank on government property. If the base is closed, the bank is out of luck. Military banks must also comply with various Department of Defense instructions.

"The base commander may ask a bank to put an ATM in a place they know they won't make any money," said Neill. "But things like that are done as a service to the troops and the banks comply to serve that end."

The AMBA is a small organization. Neill runs the association out of a home office in Springfield, Va. The association began in 1959 as a way to help military banks deal with the unique challenges they face. Today, the challenge is helping the military minimize the use of paper money, or "cash on the battlefield."

Neill said when he was young and in the service, they would line the troops up in a field house in order to dispense pay.

"It would take all day," Neill explained. "Now they're given a stored value card. It speeds things up and saves training time, which is so important to the troops."

Stored value cards with Visa or MasterCard logos are quickly replacing cash for troops stationed abroad. They add convenience and security while eliminating the problems cash create, for instance, on enormous ships that house 6,000 people. If each soldier has $500, then $3 million is floating around out there, which is probably a conservative estimate. Processing the continuous exchange of this cash requires a staff of clerks. It's a bit of a mess.

The cash machine on board will likely be gone one day, but Neill emphasizes that these changes have the troops best interest in mind. It's where the differences between civilian banks really begin and end, he says. After all, these banks' mission is to serve those who provide a much greater service. The satisfaction of this is their reward for bearing unusual burdens. Of course, there are various perks to being a military bank as well.

"I can't think of a single instance of robbery," said Neill.

You would be a fool to try robbing a bank that is surrounded by our bravest men and women.

By Justin Dullum, Associate Editor