BANKPRO COMMERCIAL BANK SIMULATION Developments In Business Simulation & Experiential Exercises, Volume 19, 1992 207 BANKPRO COMMERCIAL BANK SIMULATION Paul D. Cretien, Baylor University ABSTRACT The commercial bank simulation described here was programmed with the objective of creating a game which would create a realistic banking environment while minimizing the number of periodic decisions made by the student teams. The simulation consists of: (1) student decisions, (2) allocation of loans and deposits based on determinants such as competitive pricing, (3) calculation of quarterly financial statements resulting from team decisions and pre-determined economic variables, and (4) a ranking of bank performance. One major objective is to permit students to adjust investments, loans, and deposits to meet prospective changes in interest rates. This allows the game to function as a teaching tool for instruction in asset and liability management. INTRODUCTION The BANKPRO commercial bank simulation is a game in which participants make quarterly decisions to operate a bank over the course of one year. Decisions include setting interest rates on loans and deposits, determining marketing expenses, issuing and redeeming common stock and subordinated debt, and paying dividends on common stock. Printed reports are generated for participating banks at the end of each quarter. The reports contain summaries of important financial ratios, balance sheets and income statements, footnotes showing the composition of loan and securities portfolios, a bank capitalization table, funding gap analysis, and other information needed to make decisions for the next quarter. BANKPRO is programmed in Lotus 1-2-3 for ease of use and understanding by students and their instructors. HOW DECISIONS ARE MADE IN THE SIMULATION Decisions are made on a one-page form. Bank management teams enter information that is used by the two computation programs to allocate loans and deposits, and to calculate new quarterly results. Competitive decisions may be made for up to 10 banks. The simulation is also programmed so that an individual may play the game in a non-competitive mode. Interest rates are entered for six different maturities of loans and four maturities of deposits. The total flows of deposits and loans for all banks are shown on the bank team’s decision form at the end of each quarter. The percentage market shares are shown for the various loans and deposits. The instructor controls loan and deposit demand for the entire community, adjusting these flows to correspond with other economic factors. The bank may purchase up to five different securities in each quarter, and sell as many as five different securities that it currently owns. Treasury securities may be purchased in several maturities: 1, 2, 3, 4 and 80 quarters. Tax-exempts may be purchased as 80-quarter new issues. All investment purchases are made at par value and at the market yield at time of purchase. The bank managers decide the total marketing expense for loans and deposits. Increasing marketing expense results in a positive effect on loans or deposits; however, the impact is smaller as the dollar amount of marketing expense increases. The bank may issue new subordinated debt, preferred stock, or common stock in order to increase its financial resources. Common stock may also be issued and repurchased. The bank managers must balance the stock price effect of dividends against the cash flow and impact on banks liquidity. The bank may take long or short positions in financial futures to assist in managing interest rate risk. The futures contracts are on $1,000,000 90-day US. Treasury bills. OPERATION OF THE BANKPRO SIMULATION Bank decisions are made on separate computer disks by the various student teams. On the main simulation spreadsheet model, the instructor enters the individual bank decisions and has the results of the quarterly decisions computed by the BANKPRO model. Financial reports are saved on the individual team disks and returned to the bank management teams. When the quarterly financial results are saved in the competitive mode, a summary of key ratios is saved as a separate file. The management summaries for all five banks are used as data for the spreadsheet program that ranks competing banks according to six performance measures: ROA, ROE, stock price, net interest margin, earnings per share, and capital ratio. The BANKPRO quarterly report combines the usual financial statements generated for a commercial bank with other information not published in public reports. The report attempts to provide the banks managers with all the information needed to make good decisions for the next quarter. Quarterly statements are balanced by using federal funds bought or sold. The last page of the financial report contains a funds flow statement, and a table showing time to repricing for various categories of assets and liabilities. CONCLUSION The BANKPRO simulation has proven to be an excellent addition to the basic course in commercial banking. The game allows students to make decisions in most important areas of bank management and to see the results in a realistically complex set of financial statements. Competitive elements and relationships among many of economic and decision variables give bank teams a feel for real bank operations. Table of Contents Volume 19, 1992 The Pedagogical Utility of a Management Simulation Game in a Business Policy Course Modeling Economic Environments in Business Simulations: Some Comparisons and Recommendations Experiential Learning and TQM Principles: Teaching Behavioral Science in a Business School The Use of Poster Presentations as a Final Project in the Business Policy Course The Device Business: A Management Simulation for Strategy Formulation The Advantages of Experiential learning in the Auditing curriculum A Framework for the Identification of Moderated and Mediated Performance consequences of Pedagogical Alternatives Simulating Qualitative Research Relating to Values and Lifestyle Segmentation A New Market Demand Model for Business Simulators Interactive Optimization Using the Method of Relative Improvement Preferences: Methodology and Empirical Evaluation The Service Trainer Simulation Benefits of Internet Computer Networks for ABSEL Members How Should We Measure Experiential Learning? An Assessment of Simulation Usage in Management Accounting Courses The Influence of Myers-Briggs Type and Group Dynamics on Simulation Performance Effective Leadership Behavior in the Desert Storm Arena: An Application of the Vroom-Yetton-Jago Model Installing and Consolidating Work-Team Values: The Effects of a Multicultural Outdoors Experiential Program Key Determinants and Decision performance in a Business Simulations and Experiential Learning environment Multi-Cultural Experiential Learning: A Computer Simulation in Indonesia Attitudes Toward and Emotions Related to Women as Managers: A Replication and Beyond Scenario Approach to Simulating Consumer Expenditures: A Cross-Cultural Analysis Insights into Ethical Decision making Activities and Organizational Performance: A Management Simulation Analysis of College Students and Managers Evaluating a Business Simulation Program for Joint Venture Negotiation and Management Teaching Business Interviewing Strategies with an Experiential Approach Cooperative Learning Across the Business Curriculum Modeling Total Quality Elements into a Strategy-Oriented Simulation Teaching Business Decision making using a Simulator Extending the Educational Utility of a Simulated Competition within the Confines of an Established Undergraduate Marketing Curriculum Expert Systems Versus Traditional Methods for Teaching Accounting Issues Confidence Extremes Diminish Quality Performance in a Total Enterprise Simulation Can Ethics Be Taught? A Simulation Tests a Traditional Ethics Pedagogy Through The Looking Glass, Inc.: Organizational Climate Research as Experiential Pedagogy The use of Cluster Analysis for Business Game Performance Analysis Power and Ethnicity: An Experiential Learning Exercise (How to Sensitize Students to Diversity) Directed Development of Critical and Creative Thinking Skills for Case Analysis Implementing Total Quality Management in a Computerized Business Simulation Product Quality in Business Simulations Use of Simulation for Ethics Education in Management Satisfying the University's Customers through Total Quality Management Instruction: A Case Study Personality Characteristics and Group Performance in Total Enterprise Simulations Concepts of Interval Estimation and Quality Control Charts via Computer Simulated Sampling An Examination of the Effect of Team Cohesion, Player Attitude, and Performance Expectations on Simulation Performance Results The Effectiveness of Inventory Management and Production Scheduling Training in a Total Quality Management Environment Peer Group Indicators of the External Validity of Business Games: A five-year Longitudinal Study Political Strategies and Personal Actions Does Practice make Perfect? Observations on Simulation Trial The Use of A Non-Business Computer Simulation to Teach Marketing Management BankPro Commercial Bank Simulation The Production Game Pursuing Excellence: Work Strengths, Assets and relevant Values (An Exercise) Test of a Short Outward Bound Experience for College Students What is it that we want Student To Learn? Using Two TQM Philosophies when Playing Blackjack The Lagged Effects of Decision Variables on Financial Performance Measures Used in Two business Simulations The Development of an Experiential Exercise for Career Planning and Effective Job search Performance Measuring Quality in Management of Business Pedagogy Exploring Quality and Productivity Improvement: Using and Experiential Process Toward a Generalized Architecture for Intelligent Reactive Management Systems The Quality Game TQX: Using Expert Systems to Improve Training in Total Quality Management A Simulation of the Effect of the Medicaid Payment Lag on the Financial Position of Community Pharmacies The Use of a Board of Directors to Evaluate and Validate Decisions in a Competitive Graduate Management Simulation Course The Impact of Academic Dishonesty on Business Simulations and Experiential Learning Activities Picture Project: An Experience of Icebreaking and/or Decision-Making An Effective Role-playing Exercise for Teaching Requisite TQM Supervisory Attitudes/Behavior Computerized Management Simulations and Some Correlates of Students' Satisfaction The Timing and Stability of Reactions to Market Structure in a Single Player Simulation Environment A Graphics Application Extension for a Simulated Decision Support System Environment Aspects of a Group Project Utilizing Actual Business data and a Computerized Accounting System The Role of Universities' Extended Learning Department in Assisting Organizations Implement Total Quality Management A three-dimensional Learning Experience to Develop Total Quality Management Skills Estimating Quality Costs by Computer Simulation Applications and Examples of Quality Control Software Assessing Business Pedagogy A Demonstration of an Experiential Process for Exploring Quality and Productivity Improvement Processes An Action-Ethics Dilemma: A Demonstration Org Sim Jr.: A 2-3 Hour Version of the 2-Day Blanchard/Murrell Organization Simulation Building Buildings: An Experiential Exercise in Organizational Structure, Communication, Leadership and Group Dynamics Expert Systems for Organization Design: A Demonstration A Demonstration of Product Quality in a Business Simulation: Version 2 of CEO Two Revolutions, Total Quality Leadership, and the Baldy: The Story of Milliken Total Quality after the Award - The Xerox Story Building a Competitive Advantage through Customer Satisfaction and Reengineering Human Resource Planning: Managing the Only Renewable Resource for a Competitive Advantage Using Simulations to Teach International Issues: An analysis of the Multinational Management Game's Learning Environment Quality Function Deployment: A Tutorial Care and Nurturing of Teams Making a Good Thing Better: Adding TQM to Participative management Empowering Organizations to Redesign and Transform Themselves - Eastman Chemical Using Simulations in Field Management Development of an International Life Insurance Company Reinforcing the TQ Environment via Simulation Transforming a Business College into a Total Quality College