Lauren Hayes
Commercial Banking
Final Paper
Loans, Policies, Ending Balances, and Futures
Loans and Loan Policies

As a group, we decided that we Cash Money Millionaires National Bank should be a consumer bank. In order to achieve that, we stayed a few basis points below all banks in the economy on prime, high, and medium loans. On real estate and consumer loans, we lowerd our rates a little more that way customers would come to our bank to do their personal loans. We wanted to be an “affordable” bank. We did not want our rates too low so that we would not accrue too many default loans. At the same time, we did not want our rates too high because we knew that customers would leave us for a more affordable choice. In quarters 2.2-3.1 we stayed fairly close to prime, high, and medium loans. We only lowered our rates approximately 3-5 basis points. On real estate and consumer, we went a little lower hoping that that would bring in the types of customers we wanted. In quarter 3.2 we realized that it was a bad idea and that we were not making much money. In quarters 3.2-3.3 we raised our rates up to try and make up for our losses. As for our loan policies, we chose to stay conservative. We decided staying conservative would help us the most because even though we may not have made as many loan commitments, our non accruing loans and loan loss provisions were lower than if we would have been aggressive.

Ending Loan Balances

Through quarters 2.2-2.4 our loan rates were at a good level, and we were steadily raising our profits. In quarter 3.1, the economy took a hit and interest rates dropped much lower than normal. When looking at our profits from loans graphically, it looks like we decreased a significant amount. When income is compared to the rates, we still made a good profit from loans. We just took a loss because the economy did. As far as real estate loans, they still continually make a profit despite the economic drop. This is because we focused a lot of our time on real estate loans and kept our rates reasonable so consumers still were making home loans with us.

Futures Contracts

When we decided to start hedging, we did not really know how to go about. We did not start hedging until quarter 2.3. We increased our futures by 8%, and earned a good amount of income from this. In 2.4 we decreased our futures by 4% and took a loss from this. In quarter 3.1 we did nothing. This helped us remain steady and earn a little bit of our money back. In quarter 3.2 we decreased our futures another 4% back down to zero. This also cost us a little bit, but the gains we earned on securities and futures in quarter 2.3 and 3.1 were enough to cover our losses and still make a profit.

Looking into the Future

If we were to run more quarters in the bank sim, we would change a few of the mistakes that we found a little too late. When deciding loan rates, we should have stayed a little closer to the average value and not drop too many basis points lower in the beginning. We really had no control over the hit in the economy, so I think that we performed fairly decent during the recession. When it comes to futures, there were quite a few things that we should have changed. First off, we should not have increased our futures so much percentage our first quarter trying to hedge. We should have steadily increased it only a couple percentages. Also, we should not have lowered our futures so dramatically. The same as increasing our futures, we should have slowly decreased back down to a percentage we were comfortable with. Overall, I think hedging was a good thing for us in that we made good profits, but I also think that was a contributor to our over capitalization. In future quarters we should have hedged a little slower.