📚 The Dual Mandate & Your Tools:

DUAL MANDATE: The Fed must balance two sometimes-competing goals:

• Price Stability - Keep inflation around 2%
• Maximum Employment - Keep unemployment low

YOUR MAIN TOOL - Interest Rates:

RAISE RATES (Contractionary Policy): Fight inflation
→ Federal Funds Rate ↑ → Commercial lending rates ↑ → Borrowing more expensive → Investment/spending ↓ → Economy slows → Inflation ↓ but Unemployment may ↑

LOWER RATES (Expansionary Policy): Fight unemployment
→ Federal Funds Rate ↓ → Commercial lending rates ↓ → Borrowing cheaper → Investment/spending ↑ → Economy grows → Unemployment ↓ but Inflation may ↑

THE CHALLENGE: These tools require opposite actions! You must decide which part of your mandate takes priority based on current economic conditions.

💡 What you'll learn:

Commercial banks are the backbone of the financial system. They lend money to other banks (using the Federal Funds Rate), to businesses and consumers (using rates based on LIBOR/SOFR and Prime Rate), and make investment decisions. Banks must balance making profits with managing risk and meeting regulatory capital requirements.

⚠️ How This Works:

This is a choose-your-own-adventure simulation. Unlike the other simulations, your choices here will branch the story in different directions. Save one institution and you might face different challenges than if you let it fail. There are no perfect answers—only trade-offs, consequences, and the weight of impossible decisions.

Remember: This is inspired by real financial crises but isn't historically accurate. It's designed to teach you about the complexity of crisis management, not to replicate what actually happened.

🏝️ Understanding Currency Pegs:

WHAT IS A CURRENCY PEG?

A currency peg is a fixed exchange rate where your country's currency is locked to another currency (in this case, the U.S. dollar at 1:1). This means 1 island dollar = 1 U.S. dollar, always.

WHY PEG?

• Tourism Stability: 70% of your GDP comes from tourism, mostly American tourists. The peg makes it easy for them to spend without worrying about exchange rates.
• Import Costs: You import 85% of goods from the U.S. The peg keeps import costs predictable.

THE TRADE-OFF:

To maintain the peg, you cannot use monetary policy independently. When the U.S. Federal Reserve changes rates, you must follow. When the dollar strengthens or weakens globally, your currency must move with it.

YOUR LIMITED TOOLS:

• Foreign Reserves: Buy/sell currency to maintain peg
• Capital Controls: Restrict money flows in emergencies
• Debt: During crises, borrow instead of adjusting currency

THE CHALLENGE: You must maintain the peg's credibility while responding to economic shocks—without the flexibility other central banks have.

🏦 Post-2020 Fed Framework:

WHAT CHANGED IN 2020?

• March 2020: Reserve requirements eliminated (set to 0%)
• Banks now hold reserves voluntarily based on their liquidity needs
• The Fed moved to an "ample reserves" or "floor system"
• Balance sheet expanded massively due to pandemic QE

YOUR NEW TOOLS:

1. IORB (Interest on Reserve Balances):
This is your PRIMARY tool now. The Fed pays banks interest on their reserves. By changing IORB, you control where the Federal Funds Rate (FFR) trades. If IORB = 5.40%, the FFR will trade just above that (around 5.40%-5.50%).

2. Quantitative Easing (QE):
Buy Treasury bonds and mortgage-backed securities to inject money into the economy. This lowers long-term interest rates, expands your balance sheet, and increases bank reserves.

3. Quantitative Tightening (QT):
Let bonds mature without reinvesting. This shrinks your balance sheet and drains reserves from the banking system, tightening financial conditions.

4. Overnight Reverse Repo (ON RRP):
Money market funds can park cash with the Fed overnight. This sets a floor for short-term rates and helps control the FFR from below.

HOW THIS DIFFERS FROM TRADITIONAL FED:

• Old System: Fed adjusted reserve supply to hit FFR target (scarce reserves system)
• New System: Fed pays IORB to set FFR (ample reserves system)
• Old System: Reserve requirements forced banks to hold reserves
• New System: Banks voluntarily hold reserves for liquidity/safety
• Old System: Balance sheet ~$800B pre-2008
• New System: Balance sheet $8.9T (2022 peak), now ~$7.2T

YOUR DUAL MANDATE REMAINS:

• Price stability (2% inflation target)
• Maximum employment (low unemployment)

THE CHALLENGE: Use modern tools to achieve timeless goals. IORB changes work like traditional rate changes, but QE/QT affect the economy through different channels (long-term rates, wealth effects, credit availability).

🚨 The Situation:

LEHMAN BROTHERS IS COLLAPSING

• Markets open in 18 hours (Monday 9:30 AM)
• Your bank holds $2.8B in Lehman-related assets
• Credit markets are frozen - no one is lending
• Your stock is down 35% in the past week
• The Fed has refused to bail out Lehman

YOUR MISSION:

Navigate through your bank's departments, solve critical challenges, and make the decisions that will determine whether Sterling Capital survives Monday morning.

RESOURCES TO MANAGE:

• Capital: $3.2B (your buffer against losses)
• Liquidity: $1.8B (cash to meet obligations)
• Reputation: 75/100 (affects market confidence)

HOW IT WORKS:

1. Navigate Rooms: Visit Trading Floor, Risk Management, Legal, Board Room, and Treasury
2. Solve Puzzles: Each room has a challenge you must complete
3. Watch The Clock: You have 18 hours (sped up for gameplay)
4. Manage Resources: Every decision affects your Capital, Liquidity, and Reputation
5. Survive Monday: If you still have positive capital when markets open, you win!

THE CHALLENGE: This is not a drill. Lehman's collapse will trigger the worst financial crisis since the Great Depression. Make the wrong calls tonight, and Sterling Capital will be next.

🎯 Your Role:

As Branch Manager, you balance three key metrics:

• Profit: Make smart lending decisions, generate fee income
• Customer Satisfaction: Provide excellent service, solve problems
• Compliance: Follow banking regulations, avoid violations

🕒 How It Works:

1. Explore the Bank: Click on different areas of your branch
2. Meet Characters: Customers, employees, and regulators visit throughout the day
3. Make Decisions: Each interaction requires you to choose an action
4. Watch Your Metrics: Decisions affect profit, satisfaction, and compliance
5. Survive the Day: Keep all three metrics above 50% to succeed!

📚 What You'll Learn:

• How retail banks evaluate loan applications
• Customer service challenges in banking
• Regulatory compliance (KYC, AML, fair lending)
• Trade-offs between profit and customer satisfaction
• Day-to-day operations of a bank branch