JasonLJJ wrote: Mon Dec 02, 2019 7:45 am
Hello David
May I ask if update 6.1.10 will have the suggested improvement of allowing cities to deposit money in the bank / purchase bonds as well as changing bank branch size to 2x2?
Is there a forum post where we can post our thoughts on other features you can add to the bank ? Have a several thoughts
Can't wait !
And I want the city economy to be fixed first. Wanna fight?
Update upon the release of version 6.1.11
The new version changed the bank ratio's formula and thus increased banks' profitability. I have reset the poll. Please vote again using the latest version.
David - It seems that the profitability of the banking industry is still a matter for debate within the community.
Is this result for this poll recent and incorporates all the updates? Would be interesting to see the community reaction.
Personally, I'd rather see a more competitive banking industry that can allow 3-5 firms exist but a larger market size (a fraction of GDP). As you can see, bank assets to GDP by country in developed markets is around 60%- 100% for countries like the USA and France.
I’m finding with the 6.202 settings, the banks are too profitable in terms of unlevered ROE. I.e., if you transfer in a lot of funds they get loaned out at an attractive ROE even if you have a capital ratio of 70%. Part of the reason is I put all cash into low grade loans (C) because I have not seen a single month where the net credit yield for the lowest grade of loans was worse than for the next highest grade and beyond.
In real life, banks could never be that heavily invested in low grade loans because the risk of a blow up is meaningful. On the other hand, banks couldn’t generate a decent ROE with 70% equity to assets in real life either. Loans should be harder to originate (not just automatic when you put in cash), credit losses for lower grade loans should be significantly more volatile, and both deposit rates and loan rates should be lower.
I think the latest 6.2.02 actually I have run default banking DLC settings and I dont find the banking industry is overkill. I make around 500m a year after 25years with 120 branches but when their is a depression the losses hit as hard.
Took a bit to get the bank steady cash flow and keeping the asset ratio up so it wasn't as easy in the beginning but abit of tweaking here and there and its manageable.
Update: our plan is to use the new ROE graph implemented in v6.3.00 and run a number of game sessions and see if the AI controlled banks are able to achieve ROE of around 8-10% on average. (There will be inevitable AI banks that perform lower or higher than the average though.) 8% - 10% is about the industry average and is deemed the reasonable RoE in the game.
Once we have tweaked the engine to allow AI controlled banks to consistently performing at 8-10% RoE on average on the default setting, we will consider the fine-tuning on this aspect done. Users who have their own preferences are advised to use the new game settings to adjust the profitability of banks.
I would just add that you should need to employ significant leverage to achieve the 8-10% ROE. Otherwise, you can just pump up your bank equity to the max and compound at a very high rate over time. I think the corporate deposit cap is also helpful for limiting excessive compounding. Really, the best way to adjust this is to just make banking more interesting/challenging. I am happy to create a trillion dollar company, but I don't want it to be easy or monotonous.
As an aside, I would also like to see companies use more debt once they are large and stable to pay dividends or buy back shares. Generally, the bond market is full of D rated companies. In the real world, the biggest corporate bond issuers in the real world are stable investment grade companies like AB InBev, GE (well... they were stable when they issued the debt), AT&T, Siemens, Coca Cola, etc. These days in particular, cash flowing companies are obsessed with return of capital via dividends and especially share repurchases. In the game, share repo becomes difficult because such a high % of shares are closely held. Usually to go to scale, real world companies need to raise a lot of outside equity capital. I recognize that's hard to implement without messing up the balance, but maybe there can be some improvement at the margin.
buells wrote: Mon Jan 06, 2020 9:22 am
I would just add that you should need to employ significant leverage to achieve the 8-10% ROE. Otherwise, you can just pump up your bank equity to the max and compound at a very high rate over time. I think the corporate deposit cap is also helpful for limiting excessive compounding. Really, the best way to adjust this is to just make banking more interesting/challenging. I am happy to create a trillion dollar company, but I don't want it to be easy or monotonous.
Update: the dev team has been working on improving the bank AI. The next update will have the following improvements:
1) The AI will be more aggressive in cutting its deposit interest rate to increase its competitiveness if the setting “Aggressiveness of AI Banks and Insurance Co.” is set to High or above.
2) The AI will be more aggressive in setting up new banks to compete with existing ones if the setting “Tendency of AI to Set Up Banks” is set to High or above.
!
