Military Banking

In the 15 instances in which domestic military bases have sought banking services since 1996, the military services openly solicited proposals from financial institutions and chose from among them to authorize a bank or credit union to operate on the base, as required by Defense Department (DOD) regulations. However, the applicable regulations and instructions lack specific guidance for this selection process, and the solicitations did not specify selection criteria or the weights associated with the various factors considered. The lack of clear selection criteria makes it difficult to know the basis for selection and ensure fairness in the selection process. Financial institutions on military bases face significant competition both on and off the base. On many bases, both a bank and a credit union compete for business. Fees charged by base financial institutions appeared to be in line with the range of charges found at banks nationally. DOD has several options for increasing the revenue it obtains from these financial institutions. For example, DOD could periodically reassess the fair-market value associated with long-term leases or negotiate some type of fee-sharing arrangement for ATM services. However, it is unclear how successful these measures would be, and customers and banking services could be adversely affected.

GAO noted that: (1) in the 15 instances where domestic military bases sought banking services since 1996, the military services openly solicited proposals from financial institutions and selected from among the proposals to authorize a bank or credit union to operate on the base, as required by DOD regulations; (2) 11 of the solicitations resulted in 2 or fewer responses; (3) in a few instances where no proposals were received, DOD had to take special action to obtain banking services; (4) GAO learned of no unsolicited proposals from financial institutions to provide banking services on other bases; (5) when a base received more than one proposal, commanders cited a range of factors on which they based their selection decisions, such as fees, operating hours, or services; (6) the applicable regulations and instructions do not contain specific guidance for this selection process; (7) solicitations did not specify selection criteria or the weights associated with various factors considered; (8) the lack of clear selection criteria makes it difficult to know the basis for selection and ensure fairness in the selection process; (9) financial institutions on military bases face significant competition both on and off the base; (9) less than half of DOD's personnel use an on-base financial institution as their primary banking provider, according to a 1997 DOD survey; (10) on many bases, a bank and a credit union compete for business with each other and with off-base financial institutions; (11) fees charged by base financial institutions were close to the national average and within the range charged by all banks, on or off base; (12) a few options exist for potentially generating additional revenues for DOD from financial institutions operating on its bases; how successful such options would be is unclear, and customers and banking services could be adversely affected; (13) given that many banks' lease agreements on military bases extend to 25 years, DOD could raise an unknown amount of additional revenue by incorporating in new leases and operating agreements the requirement to periodically renegotiate lease payments based on changes in fair market value, although there is some risk that lease payments might decline; (14) DOD could negotiate automated teller machine (ATM) fee-sharing arrangements, as is sometimes done in the private sector; (15) DOD could competitively solicit ATM placements apart from other banking services; (16) the amount of additional revenues that could be obtained would vary by market conditions, including customers' reactions to likely increases in ATM charges.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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