Banking Simulation - Milestones

In 1980, the National Asset/Liability Management Competition (NALMC) revolutionized financial education by introducing a novel approach to teaching bank management through computer-based simulations. Sponsored by the Business and Management Foundation of Maryland and Olson Research Associates, the competition brought together teams from universities and commercial banks across the U.S., setting a new standard for experiential learning in finance.

The NALMC was a pioneer in using computer-based simulations to create a dynamic learning environment that required active participation. Utilizing the General Electric (GE) time-sharing platform, the competition leveraged early distributed computing technology to process complex financial decisions submitted by teams representing "banks" in a simulated marketplace. Participants made strategic decisions on factors such as credit standards, interest rates, and promotional expenditures, which were mailed to Olson Research for processing. The simulation would then generate outcomes like updated balance sheets and financial ratios, allowing participants to see the direct impact of their strategies. This approach provided a realistic environment where participants could experience the challenges of bank asset/liability management without real-world risks and deepened their understanding of the interconnectedness of financial decisions and their impact on bank performance.

The competition attracted a diverse range of participants, from MBA students at the University of Kansas, who won the championship, to teams from major commercial banks like Bank of California and Sears Bank & Trust. This diversity created a unique learning platform where academic and professional teams could compete and collaborate, enriching the learning experience by simulating the competitive dynamics of real-world banking.

The NALMC was more than just a competition; it was a precursor to a new era of financial education that combined technology with experiential learning. By allowing participants to experiment with strategies, learn from their mistakes, and refine their plans in subsequent rounds, the competition highlighted the value of simulations as an educational tool. This approach has since become fundamental in business schools and professional development programs worldwide.

Looking back, the 1980 NALMC laid the foundation for the future of financial education by blending rigorous academic study with the realism of professional practice through innovative computing technology. It remains a pioneering example of how simulations can transform learning, helping participants develop the critical thinking and decision-making skills essential for success in the financial industry.

The "Decision Aid" tool, developed alongside the "Advanced Financial Planning for Commercial Banks" textbook, marked a significant advancement in experiential learning for banking and finance education. Introduced in the 1980s, this spreadsheet-based tool was created for the Lotus 1-2-3 environment, offering an interactive platform for students and banking professionals to explore complex financial decision-making within a simulated case bank in a competitive and deregulated market.

The Decision Aid enabled users to engage more deeply with asset and liability management strategies by testing various decisions and observing their immediate impact on financial metrics. This hands-on approach went beyond theoretical instruction, encouraging users to experiment with strategic choices, such as altering the bank's asset mix or adjusting its liabilities. One of its key features was the ability to conduct "what-if" scenarios, adjusting assumptions about market conditions like interest rates to understand how these changes could affect the bank's financial position. This capability was especially valuable in an era of deregulation and economic volatility, where comprehending risk and adapting to new realities were essential skills.

The tool also provided a framework for prioritizing management goals. Users could input objectives—such as maximizing profitability, maintaining liquidity, achieving capital adequacy, or driving growth—and analyze the inherent trade-offs among these goals. This feature allowed for a comprehensive examination of decision-making, capturing the complexity that bank managers often face. The Decision Aid was designed not only to simulate possible outcomes but also to guide users through potential errors. Built-in error-checking mechanisms helped identify mistakes and offered corrective advice, enhancing its educational value and ensuring users developed a strong understanding of sound bank management.

A notable aspect of the Decision Aid was its incorporation of competitive dynamics. Users could experience how their decisions would unfold in a market where competitors were making their moves. This required them to consider both internal management objectives and external factors, such as competitor strategies and market shifts. Navigating these competitive scenarios enriched the learning experience, closely reflecting real-world banking challenges.

The Decision Aid also featured rate scenario management, crucial for teaching the complexities of asset/liability management. By exploring strategies under various interest rate environments, users learned the importance of adaptability and strategic foresight. This functionality helped users craft more resilient financial plans, preparing them for the uncertainties of a fluctuating market.

Overall, the Decision Aid significantly enhanced the educational experience for those studying financial planning and bank management. By combining the textbook's theoretical concepts with practical, decision-making exercises, it effectively connected academic learning with real-world application, helping users develop essential skills in forecasting, risk management, and strategic competition.

In 2002, as the digital landscape began to rapidly evolve, Olson Research Associates, in collaboration with the Conference of State Bank Supervisors (CSBS), set out to revolutionize bank management education. This effort led to the development of BANKdynamics, a web-based bank management simulation that quickly became a vital tool in banking education for professionals, regulators, and students.

The vision for BANKdynamics came from a need for a more dynamic, interactive, and practical way to teach bank management. The goal was to create an educational tool that could replicate real-world banking challenges, giving participants hands-on experience in managing a bank’s operations, strategy, and financial performance. The decision to make the simulation web-based was forward-thinking, capitalizing on the emerging potential of the internet as a learning platform.

BANKdynamics distinguished itself with its focus on asset/liability management and its integration with A/L BENCHMARKS, another proprietary product of Olson Research Associates. It was designed to offer an in-depth understanding of bank balance sheet management, using real banks, real interest rates, and actual financial data for analysis. The simulation allowed participants to explore historical profiles, peer comparisons, and forecasting, providing a realistic and robust learning experience.

Fully accessible online, BANKdynamics was suitable for both classroom and distance learning programs. Participants could run "what-if" scenarios to test strategies and see the real-time impact of their decisions. The simulation covered various dimensions of decision-making, such as pricing, growth strategies, and asset/liability management, with feedback provided on market dynamics to enhance learning. One of the defining aspects of BANKdynamics was its competitive nature. Teams were assessed by comparing their financial performance to management goals like profitability, asset quality, liquidity, and growth, encouraging strategic planning and execution. The simulation featured over 50 decision sets that allowed users to explore different aspects of bank management, from loan pricing to staffing and bonuses. Its "what-if" analysis tool enabled participants to predict outcomes based on various strategies, promoting critical thinking and decision-making skills. Moreover, the simulation was customizable, making it adaptable for various educational environments, from bank examiner training to MBA programs

The initial roll-out of BANKdynamics targeted key educational and professional audiences to demonstrate its capabilities. Its debut came in November 2002 during a bi-coastal competition organized by CSBS between the New York Federal Reserve (Fed) and the California Department of Financial Institutions (DFI). This event highlighted the simulation’s effectiveness as a competitive and educational tool. Following this, BANKdynamics was presented at the CSBS Supervisors Symposium and adopted by the Virginia Bureau of Financial Institutions for a 24-hour competitive exercise, involving 26 bank examiners who gained practical experience through real-time decision-making.

The simulation’s value in academic settings was quickly recognized. Dr. Tim Koch integrated BANKdynamics into the Spring MBA curriculum at the University of South Carolina’s Moore School of Business, where students ran individual analyses and engaged in group decision-making, enhancing their learning experience. In April 2003, the simulation was showcased in Chicago for state examiners, further promoting its use and announcing a "National Competition" to rank participants based on their performance. This momentum continued, leading to its adoption in alumni competitions at the Graduate School of Banking in Colorado, where teams extensively tested different strategies, demonstrating the tool's flexibility and depth.

Creating a web-based educational tool like BANKdynamics in 2002 was not without its hurdles. At the time, the internet was still maturing, and there was significant competition between browsers like Netscape and Internet Explorer, each with its unique interpretation of HTML standards. This posed compatibility challenges that required meticulous management to ensure a consistent user experience across platforms. The simulation also featured comprehensive reporting capabilities, such as A/L BENCHMARKS style financial reports , and Risk/Return Performance Ratings, which helped participants understand the full scope of financial performance and risk management in banking. As a trailblazer in web-based learning, BANKdynamics had to adapt continuously to the evolving digital landscape. The development team’s foresight and ability to navigate these technical challenges were crucial to its successful deployment and acceptance across different institutions.

Reflecting on the journey of BANKdynamics from concept to widespread adoption, it is clear that its development was marked by innovation and adaptability. The simulation effectively bridged the gap between theoretical knowledge and practical application, offering a valuable learning platform for future bankers and financial professionals. Its comprehensive features, strategic roll-out, and resilience in the face of early internet challenges established BANKdynamics as a pioneering tool in banking education.

In 2005 the Conference of State Bank Supervisors (CSBS) organized the "Problem Bank School". It was a specialized training program designed to equip bank examiners with the skills needed to manage and regulate banks facing significant financial distress. A key component of the Problem Bank School was the use of the BANKdynamics simulation, which immersed examiners in the experience of managing a problem bank.

BANKdynamics played a central role by simulating the environment of a troubled bank. Participants were assigned to teams, each acting as the management team of a problem bank. These teams navigated through multiple decision-making sessions, each representing a quarter in the life of a problem bank. The simulation allowed participants to engage with real-world scenarios, making strategic decisions to resolve issues and improve the bank's condition over time. Through BANKdynamics, examiners gained hands-on experience in managing critical aspects such as asset quality, liquidity, capital, and compliance.

Teams were evaluated based on their decision-making abilities and performance outcomes using the CAMELS rating system, a standard regulatory framework that assesses Capital adequacy, Asset quality, Management quality, Earnings, Liquidity, and Sensitivity to market risk. The use of BANKdynamics allowed examiners to see how each component of the CAMELS rating impacted a bank's health. Instructors calculated scores for each team based on their strategies, emphasizing asset quality and management, and provided immediate feedback on their performance.

The Problem Bank School also incorporated after-action reviews, where participants reflected on their decisions and lessons learned. These sessions enabled teams to discuss what worked, what didn’t, and how they could improve their approach to managing a problem bank. The dynamic and interactive nature of BANKdynamics enriched this process, making the Problem Bank School a valuable training ground for future bank examiners.

In the early 2000's we had the opportunity to witness bank examiners engage in a unique and immersive learning experience known as the "CSBS Interactive Market Simulation." (CSBS stands for the Conference of State Bank Supervisors)  This simulation was the brainchild of its primary designers, Mike Stevens, Sebastien Monnet, and Roger Stromberg. Crafted as an in-classroom activity rather than a separate lab event, the simulation offered a deep dive into the intricacies of bank management, focusing on the financial dynamics of individual transactions. Unlike simulations aimed at replicating the customer experience, the CSBS Interactive Market Simulation emphasized the strategic and financial management challenges faced by bank executives.

The simulation was structured around two primary teams, each representing a bank managed by a group of students tasked with running their own financial institutions. Other students assumed the roles of bank customers, adding a layer of negotiation and real-world decision-making. However, the real educational value lay with the bank teams. These participants were immersed in the complexities of financial management, cash flow, risk assessment, and competitive strategy, providing them with firsthand experience of the challenges and rewards of managing a bank.

Each round of the simulation represented a financial quarter, requiring the "banks" to make critical decisions on lending, borrowing, and managing their capital and assets. Success was measured by key performance metrics such as Net Interest Margin, Capital/Assets ratio, Return on Assets (ROA), and Return on Equity (ROE). This structure allowed students to explore the consequences of their decisions on the balance sheet and income statement, emphasizing the importance of cash management and the impact of various transactions on overall financial health.

The authenticity of the simulation was further enhanced by its reliance on manual management through spreadsheets. Each bank's financial decisions were tracked and recorded, creating a realistic environment where every transaction had to be justified and every outcome analyzed. This hands-on approach enabled students to grapple with real-world constraints and financial pressures, closely mirroring the experience of actual bank managers.

One of the simulation's distinguishing features was the use of "Red" and "Blue" cards—a nod to earlier hobby games like Haggle and Thiagi's Trading Card Simulations—that represented mandatory actions and negotiable opportunities, respectively. The "Red" cards dictated specific scenarios requiring immediate action, such as loan payouts, maturing deposits, or funding constraints. In contrast, the "Blue" cards presented opportunities for negotiation between the banks and customers, demanding strategic thinking and competitive pricing. This interplay added layers of complexity, teaching students the art of negotiation and the importance of maintaining favorable rates for both loans and deposits.

The primary focus was always on the bank teams, who were the main beneficiaries of this educational exercise. They were encouraged to think critically about their strategies, understand market dynamics, and navigate the unpredictable nature of banking transactions.

Looking back, the "CSBS Interactive Market Simulation" remains a powerful example of experiential learning in financial education. By transforming theoretical banking concepts into a tangible, interactive environment - most importantly, it demonstrated that the academic tradition of assigning simulations as a lab-style activity was outdated.  Bank simulation could be an engaging interactive classroom activity. For those who participated, the experience was more than just an exercise; it was a formative journey that provided valuable insights into the world of financial management, preparing them for the complexities of their future careers.

Quickbank is an interactive bank simulation created by Olson Research Associates that immerses participants in the complexities of bank management and financial strategy. It draws on years of experience in developing educational tools that replicate real-world banking challenges. The simulation provides a competitive environment where teams manage a simulated bank, making strategic decisions that impact their performance across key financial areas like net income, capital adequacy, credit quality, liquidity, and interest rate risk.

Using an iPad app, teams make decisions in real-time, allowing them to immediately see the effects of their actions on their bank’s performance. This immediate feedback is a central feature of Quickbank, helping participants understand the consequences of their choices and adjust their strategies dynamically. Whether altering loan portfolios, managing funding costs, or balancing risk exposure, teams learn to refine their approaches to optimize outcomes.

Quickbank incorporates two main types of decisions: financial market activities and customer market decisions. In financial market activities, teams can buy and sell securities or engage in wholesale borrowing to manage liquidity and interest rate risk. These decisions help participants grasp the complexities of financial management, such as how to adjust the risk profile of their bank or respond to changing market conditions. Customer market decisions involve trading cards that represent different financial products, such as high-risk loans, low-risk loans, checking accounts, and time deposits. This card trading system allows teams to build their loan and deposit portfolios strategically, optimizing for risk and return. The integration of these decision types requires participants to think critically about balancing market strategies with customer-focused decisions, fostering a comprehensive understanding of bank management.

In the longer, full-day sessions, Quickbank offers additional depth through advanced activities, though the primary focus remains on the core simulation experience. Participants may engage in exercises like preparing an earnings call or creating an infographic to summarize their bank's performance, but these are supplementary to the core decision-making and competitive aspects of the simulation. These activities are designed to enhance participants' ability to analyze and communicate financial results, though they serve as complementary exercises to the main simulation activities.

A significant aspect of Quickbank is its stress-testing capabilities, which allow participants to test different scenarios and assess potential risks. By adjusting modeling parameters, such as the level of credit losses or the repricing of core deposits, teams can explore how various strategies might impact their bank under different economic conditions. This feature helps participants understand the importance of risk management and strategic planning, providing a practical way to learn how to navigate potential financial uncertainties.

The competitive nature of Quickbank drives engagement and learning. Teams are ranked based on their performance metrics at the end of each round, and these rankings are updated in real-time, creating an environment of continuous improvement. This structure motivates teams to analyze their strategies carefully, learn from other teams, and make adjustments to stay ahead in the competition. The real-time feedback and rankings encourage a dynamic learning process where participants must adapt and refine their approaches to achieve the best results.

Quickbank is a robust educational tool that combines realistic bank management scenarios with interactive gameplay and strategic decision-making. It offers a comprehensive simulation experience where participants can learn about balance sheet dynamics, risk management, and strategic thinking, equipping them with the skills necessary to succeed in the competitive world of banking.

The Risk/Return Case Study, also known as the "A/B Game," is an interactive web-based exercise developed by Olson Research Associates. This activity is designed to provide participants with a deep understanding of bank balance sheet management and the critical trade-offs between risk and return. Derived from the principles of the Quickbank simulation, the Risk/Return Case Study focuses on helping participants think like senior bank executives who must make strategic decisions to optimize their institution's financial performance while managing risk.

The activity begins by introducing participants to a case study bank, presented through a combination of financial data and narrative scenarios. The bank's current position is displayed on a dashboard that includes key metrics such as net income, return on equity (ROE), yield on earning assets, cost of funds, capital ratio, credit quality, liquidity, and interest rate risk. This comprehensive overview helps participants understand the bank's financial health and identify areas for potential improvement. From this starting point, participants are tasked with making a series of strategic decisions to navigate the bank through various scenarios that affect its risk profile and profitability.

The core of the Risk/Return Case Study is its "choose your own path" approach, where participants are presented with a series of decision points. At each juncture, they must choose between two options—labeled "A" and "B"—each with distinct financial implications. For example, one option might involve adding fixed-rate loans with higher yields but lower credit quality while selling long-term securities, while the alternative could involve adding variable-rate loans with lower yields but better credit quality and acquiring transaction accounts. Each choice impacts the bank's balance sheet, earnings, capital levels, and overall risk exposure differently, challenging participants to weigh the pros and cons carefully.

As participants progress through these decisions, they are not only making choices in isolation but are also competing against other teams in the workshop. After each decision round, all teams' results are compared, fostering an environment of collaborative learning and strategic discussion. This format allows participants to see how their choices stack up against those of their peers and encourages them to think critically about their approach to risk and return. They discuss the rationale behind their decisions, the trade-offs they made, and how different strategies lead to different outcomes. This reflective process helps deepen their understanding of bank management dynamics and the complexities of financial decision-making.

The Risk/Return Case Study is suitable for a wide range of participants, from those with limited financial exposure to those with more advanced knowledge of banking and finance. It provides a hands-on experience that mimics real-world decision-making, helping participants develop a nuanced understanding of how to balance profitability with risk management. The exercise is typically conducted over a half-day session, either live in a classroom or online, with participants working in teams of two. The format encourages interactive learning, as teams analyze financial data, make strategic decisions, and see the immediate impact of their choices on their bank's performance.

By the end of the workshop, participants gain a comprehensive grasp of key concepts such as the components of a bank’s balance sheet, the risk-return trade-offs involved in achieving profitability, and the dynamics of managing capital, asset quality, liquidity, and interest rate risk. The "A/B Game" format effectively demonstrates how small changes in strategy can significantly impact a bank's financial position and helps participants appreciate the complexity and interdependencies inherent in managing a financial institution. This makes the Risk/Return Case Study a powerful tool for both learning and professional development in the field of banking and finance.

The Head-to-Head game is an engaging and competitive exercise designed to simulate the complex decision-making environment of managing a bank. In this version, two teams compete directly against each other to build and manage the "best" bank. Teams alternate turns selecting portfolios from a random market, and these choices directly impact their bank's financial performance and strategic position. The game simplifies decision-making by allowing teams to choose from a volume of $1 billion or $2 billion for four key portfolio types: business loans, consumer loans, transaction deposits, and savings deposits. This streamlined approach keeps participants focused on core elements like risk, return, growth, and profitability without overwhelming them.

The game begins with teams taking turns to select from a randomly generated market. With each turn, a team chooses a portfolio type and volume, considering the impact on their bank’s balance sheet and performance metrics such as yield, cost, net income, credit score, and capital ratio. After each team has made three choices in a round, their performance is scored based on how well they manage key financial objectives. Teams earn "Stars" for their effectiveness in areas like risk management, optimizing returns, maintaining capital adequacy, and achieving growth. These stars provide a clear measure of how well each team navigates the complexities of bank management.

The Head-to-Head game consists of four rounds, each offering a new opportunity for teams to refine their strategies and make decisions that could give them an edge over their competitor. At the end of the four rounds, the total number of stars each team has earned is adjusted to reflect their performance in managing risk and capital, which is evaluated from a regulator's perspective, as well as their success in driving returns and growth from an investor's viewpoint. The final score is further modified based on how well each team achieved their chosen management goal, whether focused on risk, return, capital, or growth. This ensures that teams are rewarded not only for round-by-round success but also for staying true to their strategic objectives throughout the game.

A critical instructional point in the Head-to-Head game is the variety of factors that influence a team's decisions. Participants must consider the expectations of stakeholders like customers, employees, investors, and regulators, whose priorities can shape strategic choices. The market environment, shaped by supply and demand, economic conditions, and demographics, also significantly affects decisions. Additionally, a team’s management style and organizational goals play a key role in navigating these challenges. Teams must balance their internal strategies while adapting to the moves of their competitor, whose actions can directly impact the game’s outcome.

By alternating turns, making strategic choices, and competing directly against each other, participants learn to balance multiple factors, respond to market conditions, and anticipate their competitor’s strategies. This interactive setup creates a dynamic learning environment where each decision can greatly impact overall performance. The Head-to-Head game encourages critical thinking about strategy, risk-return trade-offs, and competitive dynamics, providing a realistic and valuable simulation of the challenges faced in real-world banking.