Rate Shock

Real

• The interest rates. Every game runs over nine consecutive quarter ends of the US Treasury's Daily Treasury Par Yield Curve Rates, from to , using the last day Treasury published in each quarter (retrieved ). Nothing is smoothed or invented here. Treasury works its curve out from indicative closing quotations, not from trades. Source: US Department of the Treasury; its figures are a work of the US government.
• How a bond is priced. A bond's value is its remaining payments discounted at today's yield for the time it has left, paid twice a year. Yields between the published maturities are read off a straight line.
• The 2% line. Under US prompt corrective action rules a bank whose tangible equity is at or under 2% of its assets is "critically undercapitalized" (12 CFR 324.403), and the law gives its regulator 90 days to appoint a receiver or take another action it can justify (12 U.S.C. 1831o(h)(3)). The game is blunter: it closes the bank at that line, at once, and measures it with book capital where the rule says tangible equity.
• Lending at face value. From March 12, 2023 to March 11, 2024 the Federal Reserve's Bank Term Funding Program lent against Treasuries valued at par, not at market value. In games that cross those dates, so does the game's lender.

Rules of thumb

These are chosen to behave sensibly, not fitted to any bank's data. Change one and the game gets easier or harder; none of them changes what the rates did.

Left out

• No new bonds, new deposits, taxes or dividends. A twentieth of the loans is repaid each quarter and lent again at the new rate, unless the bank is short of cash and keeps it. Otherwise the bank you open is the bank you run; the only moves are what you pay depositors and whether to sell bonds.
• Credit losses are flat. This is a game about interest rates, and a period like 2008 was mostly about loans going bad.
• Loans are never marked down on the books and can never be sold or pledged. Real banks can do both with some loans, slowly and at a discount.
• The lender never says no, up to the value of the bonds. In a real run, getting collateral to a lender in time is its own problem.
• "Worth" at the end is capital with the bonds and loans both valued at the final rates. It ignores what the deposits themselves are worth to the bank.

Others in the same field

• BRMS, a free bank risk management simulation for teaching, from Macquarie University.
• Liquidity, a bank management game for Windows set in a fictional 1995.
• The San Francisco Fed's Chair the Fed and the ECB's €conomia put you in the central banker's seat, setting the rates this game makes you live through.

A game for learning and play. It is not investment, regulatory or financial advice, and not a picture of any real bank. A personal project by Jordan Haney, made on his own time; it is not his employer's work and not guidance from any regulator. Not affiliated with the Treasury, the Federal Reserve or any regulator.