Wednesday, May 24, 2023

Memorial Day: Remember Sergeant (USMC) Rafael Peralta

Rafael Peralta was born April 7, 1979 in Mexico City. He graduated from San Diego's Morse High School in 1997. But he had to wait to receive his green card before he could enlist. In 2000, he received it, and on that very day he enlisted in the U.S. Marine Corps as a rifleman. He would later become a U.S. citizen while serving. 

In 2001, Peralta was deployed overseas when his father died in a workplace accident. He returned home to San Diego where he was stationed at Camp Pendleton while he took care of family affairs. In 2003, he transferred to Marine Corp Base Hawaii at Kaneohe Bay, and reenlisted. He was assigned to 1st Battalion, 3rd Marine Regiment, 3rd Marine Division. In 2004, he along with his other battalion mates, were deployed to Iraq in support of Operation Iraqi Freedom. He was a scout leader.

On November 15, 2004, Peralta and his squad were heavily engaged in Operation al Fajr, commonly known as the second Battle of Fallujah. They successfully cleared six houses that morning. At the seventh house, the point man in the squad opened the door to a back room and immediately came under close-range automatic weapons fire from multiple insurgents. It was an ambush.

While attempting to get out of the line of fire, Peralta was severely wounded. As the insurgents fled the building, one threw a grenade that came to rest near Peralta's head. Without hesitation, he pulled the grenade to his body to absorb the brunt of the blast saving the lives of the Marines that were only a few feet away. Peralta succumbed to his wounds.

He pulled the live grenade to his body to absorb the blast which he knew would kill him and save his fellow Marines. 

Let's pause for a moment.

For his actions, Sgt Peralta was posthumously awarded the Navy Cross and Purple Heart. He is buried at Fort Rosecrans National Cemetary in San Diego. In 2007, the command post for the 31st Marine Expeditionary Unit at Camp Hansen in Okinawa named "Peralta Hall" in his honor. 

To further honor the heroism of Sgt Peralta, the U.S. Navy, in 2017, commissioned an Arleigh Burke destroyer the U.S.S. Rafael Peralta (DDG-115). On the ship's website, in welcoming new sailors to the Peralta, the ship's captain states: "Our ship emblazons proudly the name of an American hero, a Marine who sacrificed his own life so others might live. Our motto, 'Fortis Ad Finem', which translates to 'Courageous to the End', is a testament of his dedication to his country and his fellow Marines. Every Sailor in Rafael Peralta must strive to earn the right to represent such fortitude and devotion."

As you enjoy the long Memorial Day weekend, I ask that you remember Sgt Peralta, and all of the more than 4,300 Americans that gave their last full measure of devotion during the Second Iraqi Conflict.

~ Jeff

Sources: Sergeant Rafael Peralta (

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Iraq War - The surge and the end of the war | Britannica

Sunday, May 21, 2023

Bankers: Please End This Practice. Or It Will End You.

I recently spoke at a banking conference where I challenged bankers to end the practice of relying on sleepy depositors that don't demand top rate. You know, the practice of allowing bankers to raise deposit rates only if the customer calls and complains.

When I challenged bankers that they can't claim to be trusted advisors to their customers if they engage in this practice, I got push back. Push back because most bankers in the room likely practiced it. I heard, "what would you like us to do?" or "where were you with this advice in 2017 or 2018?"

To the second question, my response was "it's in my book." And it is. Chapter 10: The Hot Rate Stalemate, where I wrote "paying 1/3 the market rate on a customer's savings, and then bragging about it in your investor presentations, can't be a way to strengthen relationships and increase the amount of business you do with them." 

But that book, Squared Away: How Can Bankers Succeed as Economic First Responders was written in 2021. And it was hardly a best seller. Actually, it did rise to #1 in Banks and Banking on Amazon for one week. Aside from that, not many people have it on their bookshelf. Aside from my family. Well, at least they say they'll read it... someday.

However, the reference in the book was to a blog post written in 2018, titled Hot Rates, Swipe Left. Also in 2018, in a blog post titled A Time of Reckoning for Your Bank's Core Deposits, I wrote "a business model based on the sleepiness of your depositors is unsustainable." I encourage you to read both posts if wondering question number two, what would you like us to do?

What this tells me is not that I haven't been in front of this issue, but that nobody reads what I write or hears me when I speak. Or that the practice is so ingrained in bankers that we need to pass the generational torch to put a silver stake in it.

If you continue to read this article, you must be interested in breaking from the time-honored tradition of screwing your customers that don't pay attention to the rate you are paying them. Maybe "screwing your customers" is harsh. But what would you call paying depositors significantly below the market because they are not paying attention to what you are doing? Sometimes, the truth hurts. But doesn't make it an untruth.

What To Do

But there are practical considerations. Say you have $500 million in a money market product. Let's call it product 360, as representative for a product code on your core system. If you abandon the practice of making rate adjustments only for those that realize you are paying them materially under market rates and call you to complain, you would reprice $500 million in deposits! Disaster, right?

Let's take my bank, who I would normally leave anonymous but since I'm only attributing fact, I'll talk frankly. Truist was paying me .01% on my money market. When I finally woke up and realized it, Fed Funds was five percent. When I called, they said they would raise it to 3.5%. When I told the branch banker that I didn't appreciate being taken advantage of because I wasn't babysitting my money she said, "sorry." Good thing they inserted the "i" in their name as a hedge.

But if a bank increased product 360 by 349 basis points to $500 million in balances, this would add $17.5 million of annual interest expense. Even if this hypothetical bank could increase their new production loan yields by 349 basis points, it would not keep up with the $17.5 million because yield on loans would increase slowly. 

That money market account was only one of many deposit accounts I have at the bank. The others, including my checking account, I was not too price sensitive. One was for storing money for future home renovations, another saving for a future automobile, a third was a wash account for business traveling expenses. 

If when opening accounts, the bank learned the purpose of the account, and classified accordingly, they would be able to hold steady on pricing, at least not increase rates to market for those accounts I considered "store of value" accounts. These accounts are meant for accessibility, safety, and frictionless transaction processing. Maybe their product codes would be 320 and 330. So as rates rise, pricing committees know they don't have to keep pace with the market. Maybe their names would be Fort Knox Savings, where your deposits are insured up to the FDIC limit and beyond because of reciprocal deposit features, and is easily accessible via mobile, online, and your local branch.

But for those I want to keep pace with the market, you would reprice without having me check the rate you are paying me, recognizing it is below market, and having me call to complain. I'm not saying you have to keep pace with the market. I do get FDIC insurance, and the benefit of the branch and possibly a person to call on the phone. That's worth something.

Your brand should also be worth something. So often in strategy sessions I hear that a bank's brand is a strength. And sometimes this assertion is because of third party customer and non-customer surveys. But most times it's a feeling. It should be more than that. I wrote about this in 2019 in a post titled, Bank Brand Value: Calculated!

For this tightening cycle, it is probably too late to change your deposit pricing strategy. The fault in the strategy can be easily diagnosed by the hockey stick increase in your cost of funds. In recent remarks to a group of bankers, I said "our lesson learned in this most recent crisis, in my opinion: don't let market rates get too far ahead of what you pay depositors, unless you think it's worth those two or three quarters of superior cost of funds to aggravate your depositors and force them to seek alternatives and lose trust in you."

But the solution requires you to segregate depositors interested in "store of value" or "accumulation" accounts. Something we have some work to do in order to successfully execute on.

What is your deposit strategy?

~ Jeff