SIMULATION ASSIGNMENT - BANK LOAN DECISION
I frequently set up a basic scenario to pose to students who are taking a basic accounting
class to try to establish the need for accounting and the function that it serves. There are
no right or wrong answers to many of these questions I set up, I’m just trying to get you
to consider a problem/opportunity and how you might go about solving the problem. For
a face to face (F2F) class, we simply discuss the topic in class until we get a basic
structure in which to operate. For online classes, I give the scenario as a writing
assignment for students to ponder the situation and give a response. Then I respond to
those responses and we build from there. Read the following and formulate a response.
Type out your response on your word processing program and save it. Then open up the
dropbox for this class and upload your response in the dropbox for bank loan decision.
Ok, here goes the first one.
Consider the following scenario. You have just graduated from Southeast and you are
hired as a commercial bank officer. The job has an annual salary of $150,000 per year, 6
weeks paid vacation, use of company car (your favorite car), and many additional perks
that you are very fond of having. Let's just say, this is a dream job and you definitely
want to keep it. (I could have selected any type of position – CEO, adverting manager,
VP of personnel, etc. for this example to make the point I want, but I think bank loan
officer is an easier position for everyone to understand their duties and responsibilities.)
As you probably know, banks typically do not make a living by digging ditches, painting
houses, selling cars or shining shoes. They make their income by loaning money to
people who want to borrow it (like you and me) and charging us interest. So basically,
your job at the bank is when someone comes in and ask to borrow money – you say "yes"
or "no".
Consider the two extremes, you are a very conservative loan officer (very tight credit
decisions – make very few loans) or a very liberal loan officer (loan almost everyone
money who asks). If you are always so worried the person may not repay the bank, and
therefore do not make the loan, you can't be making very much money for the bank. On
the other hand, one of the worst things you can do is to make a $1,000,000 loan in which
the borrower defaults on the loan and the bank loses $1,000,000. Either way, you
probably need to be fired because (1) you are making the bank so little money that it can't
pay your salary, or (2) you're losing the bank’s money which means it can't pay your
salary.
The perfect situation is where you loan money like crazy, but only to the people who will
pay it back. This results in maximum interest income to the bank and minimizes loan
defaults. But as you know, continued profitable loan decisions are not the product of you
just flipping a coin as to whether the bank loans the money or not, but from you making
intelligent, well-informed, decisions as to each loan.
Ok, here we go. You go to work today. I have an appointment to see you at 10:00 am. I
tell you I want to borrow $3,000,000. What do you say? What's going through your
mind? How do you make the decision? Any questions for me? What do you want to
know?
Now, I would usually ask that you write out a formal response, but for this class, I would
like for you to think through what your answer would be about “what would you say?”
or “what is going thru your mind?” and what questions do you have to help you make
your decision. Once you feel that you have a well thought out response, type it up and
submit to dropbox.