1. The Banking Simulation an exploration of banking

2. The Banking Simulation an exploration of banking This computer simulation give you and the others: an opportunity to manage a “real” bank for several simulated years making decisions as part of a small team covering: –Marketing –Operations –Finance your objective, while competing against the other teams, is to make your bank a success

3. The Simulation Preparation –familiarisation & organisation –deciding strategies & objectives Decision-making –submit decisions –effect simulated –get & review results Review –discuss & compare results

4. The Situation you are the new management of a bank the bank has been operating for several years it sells into two markets – retail – corporate each with the following products –demand deposits –long term deposits –overdrafts –long term loans you will be managing junior & senior staff financial figures are in thousands of euros

5. Interest Rates You decide interest separately for the two markets and three of the four products. (You do not pay interest on Demand Deposits.) Your interest rate is entered as a multiplier of the National Bank’s discount rate (currently 8.5%). RetailCorporate Long Term Deposits0.80.85 Overdrafts2.02.5 Long Term Loans1.51.7 E.G. If the discount rate is 8.5% and your multiplier is 1.6, the interest rate charged is 13.6%.

6. Marketing Sales can be influenced through: –interest rates –your client base –promotional expenditures –account managers –staff availability –staff skills –your reputation –the actions of the other teams –the economic environment

7. Client Base For each of the two market sectors you have two types of customer: –Existing (from the previous year) –New (joined the bank this year) These clients differ in terms of response to interest rates, promotion, staff availability & skills etc.

8. Promotion and the Sales Force Promotional expenditure is decided separately for the two markets (retail & corporate). Account Managers are used exclusively to support your corporate clients. Promotion is particularly important to gain new clients. The Account Managers are important to obtain new corporate clients and to support the sale of products to existing clients.

9. Staff Availability If you have too few staff, then: –clients may be unhappy with the service they receive –some clients may leave to join another bank –you may increase loan default risk If you have too many staff, then: –some will be idle –your costs will be higher than possible If you have too few junior staff but an excess of senior staff – the senior staff will do the junior staff’s work.

10. Bank Soundness It is vital that you run a “sound bank” in terms of: Capital Adequacy Required Reserves For if you do not Your bank may not survive And your actions will be constrained

11. Capital Adequacy Is your Share Capital adequate to cover loan defaults? If not: You cannot take additional loans. You may not gain clients. The measure used is the Capital Adequacy % Share Capital/Risk Weighted Assets And must be > 10%

12. Asset Risk Weights AssetWeight Cash & Cash Equivalents0% Loans & Advances to Banks20% Long Term Loans to Retail Clients60% Other Loans100% Fixed Assets100%

13. Required Reserves The bank must hold sufficient reserves (Cash & National Bank Balances) to cover demand for payment from deposit clients. Liquid Assets/Deposits must be > 20% If below this: Borrow from National Bank (at 4x Discount Rate) Turn Away New Clients

14. Decisions For each market you decide –interest rates (separately for products) –promotion For operating staff (junior and senior) –staff numbers –quality improvement –productivity improvement And in general –account managers –loans from or to other banks Use the decision form supplied and complete it carefully and legibly and hand to the simulation controlled at the specified times.

15. Results Preliminary Results –net interest and fee income –operating profit, total assets & liabilities –performance measures Full Results –client changes –income statement & balance sheet –market sector reports –staff needs Business Research –comparative accounts –interest rate decisions & research –press comments

16. Learning through Simulation You will be working in small groups so that you can: –Share knowledge & experience –Promote, present and negotiate ideas –But, not rely on preconceived ones The trainer is there to: –Answer your questions –Coach you –Challenge you –But not tell you what to do You are in charge of the learning process

17. Observations it takes time to understand but the business still must be run therefore your decisions will not be perfect time will be a constraint by the end you should (just) be in charge of your business your business and team working skills will be challenged remember the purpose is to learn! (rather than just to win!) so, take time to reflect & review and have fun!