Banking School

I'm away this week, taking a course on how to run a bank. It's been more fun than it sounds so far, made more palatable by tools like the bank simulator. The first part of the day is spent on the blocking and tackling parts of banking, retail, commercial, operations, asset and liability management etc. In the afternoon we work in teams, are given a bank told to build a three year plan. The team is 4 or 5 people (one/two for retail/commercial, one for ops and one for asset management plus a CEO on some teams) and we are given a wide variety of knobs to turn, everything from ATM fees and locations to variable interest rate loans, interbank loans, overnight Fed loans etc. Each team is given the same bank to start, a little time on the simulator and then, at the end of the day, each team puts in a profile and the system runs them against each other along with some economic information. In the morning, we find out what we did right/wrong and what our status is among the other players.

There are about 100-120 folks in the class, divided into 4 regions of 7 banks each. Each team starts with the same bank and with the same economic info (e.g. prime is 800 bp but will goto to 775 at the end the of year one etc.) and with the FULL books and numbers for the bank. It would take the better part of a week to carefully parse the information, think it through and develop a strategy. We have 90 minutes. :)

Some observations:

Lots of folks cut all their mid and mass market programs and "focused" of high net worth. Of the 10-12 teams I talked to afterwards, all but one other took this strategy. Being a contrarian at heart, and remembering the ING think tank last month, I chose the other way and somewhat convinced the team to go along. We'll see today, but I suspect that there will be big fight for a handful of individuals and my Wall-mart, cheap and easy strategy will work (or I will have busted the bank, we'll see).

Most people were very conservative. They took this seriously and made no huge changes. We didn't either.

There was a trend in the HNWI data that, oddly, many of the HNWI strategy folks missed. HNW had a problem with non-performing loans, more so than mass market. This was surprising and we checked the data 4 or 5 times. We fixed this by raising minimum credit scores to 700 from 650 and then pouring some marketing money into it. Everyone else I talked to lowered this number. The way the sim works (I think), they will get a short term bump today, but then get hit hard on NPL tomorrow. We'll see.

No one took the "shoot the moon" strategy, i.e. no one liquidated all their branches and went totally online. Branches are a huge cost and the model would allow you to save huge by getting rid of them, but no one I talked to did. I hope today we find someone who did, I'd like to see how this pans out.

That's it. I'll update tomorrow, but the SimBank think is really a lot of fun and I'm learning shitloads about banking.