Rate Shock

You run a small bank: $500M of deposits and $50M of your owners' capital. First you choose what to hold. Then eight quarters of real US interest rates play out, and each quarter you choose what to pay your depositors.

The dates are hidden until the end. You see what a banker saw that day: today's rates, and nothing about tomorrow's.

• Cash is safe and earns the short rate, which may be nearly nothing.
• Bonds pay a fixed rate. If rates rise they lose value, on paper until you sell.
• Loans pay the most and cannot be sold when you need money.
• Depositors leave if you pay much less than a Treasury bill does, and the large ones run if your bond losses outgrow your capital.

The bank is closed if it cannot pay depositors who want out, or if its capital falls to 2% of its assets. Survive, and you are graded on what the bank is worth.