Possible Tweaks to the Banking System

[buells]

When I play, I usually use significant leverage to achieve a variety of objectives. Early on I borrow as much as I can to invest in my operations, which pretty much always works as the return on assets early in the game basically always exceeds the interest rate. I buy back all the public stock as soon as I know I will have a steady stream of free cash flow. Then I do opportunistic buybacks from private investors when my stock seems undervalued.

I hate piling up a lot of cash because the return on cash is deeply negative given inflation. If you have a lot of debt outstanding, you can deploy cash to pay back the bank, which provides a pretty decent savings.

Later in the game I pursue huge debt financed acquisitions, which is a real hassle because you have to buy a lot of shares from your subsidiary. This infuses a huge amount of cash into the sub, which never knows what to do with it. The bank won't grant you incremental borrowing capacity to complete a merger because it doesn't realize you access a huge amount of cash when the merger is completed. Consequently, sometimes I wind up having to issue shares to the target company

My suggestions/thoughts:

The AI should use a significant amount of debt when it makes sense for it do so. Debt financing in the game is incredibly attractive. Sometimes you even get negative real interest rates on a floating rate loan, which is basically free money. The problem with doing this is that the AI public float would disappear even more quickly than it does already. One of the things that annoys me already is that private shareholders wind up owning so much equity over time. I think the player and the AI should have a lot less money at the beginning of the game. Maybe this is already something I can change. I'm not too up on the modding options.

Maybe some kind of bridge loan feature. May be too hard to implement.

Maybe some kind of risk premium on debt when you get closer to your borrowing limit. This would make taking on massive leverage less appealing.

I'm not sure what the borrowing limit is based on. It definitely takes into account asset value (fluctuates a lot if you have a lot of stock). Since stocks are very volatile, if you have a big stock portfolio it can swing dramatically. It might be good for the bank to give you less credit for volatile assets (in this case pretty much just stocks).

Maybe interest rates should just be higher relative to inflation. The return on capital is so high early in the game that its very hard for debt financing to bring down your ROE if you're allocating capital reasonably well.

If the bank could somehow call your loan after a period of time (revolving credit agreements in real life obviously require periodic extension or refi,) that would be a huge reason to pare back leverage. That's probably too hard to implement, however.

[therealevan]

The problems/issues you have mentioned have been being talked about for years now on these forums. The idea is that a majority/all of them will be addressed in one way or another in a future banking / finance industry DLC. I've been away for a few months, but I do recall David mentioning and participating in these discussions so hopefully there is something in the works right now.

[Arcnor]

The problems/issues you have mentioned have been being talked about for years now on these forums. The idea is that a majority/all of them will be addressed in one way or another in a future banking / finance industry DLC. I've been away for a few months, but I do recall David mentioning and participating in these discussions so hopefully there is something in the works right now.

Sadly the last I heard this was not going to happen. The developers decided that banking didn't add enough to the game play.

[therealevan]

The problems/issues you have mentioned have been being talked about for years now on these forums. The idea is that a majority/all of them will be addressed in one way or another in a future banking / finance industry DLC. I've been away for a few months, but I do recall David mentioning and participating in these discussions so hopefully there is something in the works right now.

Sadly the last I heard this was not going to happen. The developers decided that banking didn't add enough to the game play.

What? really? Where did he say that? I will be really disappointed if that's the case

[azxcvbnm321]

Finance is very complicated and a lot of the features that players mentioned would be either unnecessary or very hard to implement well. Like the banks limiting the loan amount based on your total assets, I don't see a problem with that. The bank has no idea what you're going to do with the money and can't predict if your investments will be profitable or not. I've bought out competitors before just to eliminate retail competition or gain tech, in almost all cases this produced big short term losses. If you have access to unlimited, or nearly unlimited money, then the game becomes too easy. It's easy enough to take over companies, the only thing preventing you is the money needed. And most companies do have to issue shares to buy a company.

Yes debt financing is usually a good deal, which is why it would make the game too easy if you could borrow more than currently allowed, which is already a lot. The AI doesn't seem to borrow a lot, but I always manage to max out my limit at the beginning of games. Even at 10% interest rates, my returns are greater than that. I think the biggest dilemma I have is how much of my credit limit I should use to buy back company stock because I know the stock is going to become more valuable over time, but spending that money will slow down expansion. I always end up with 100% of my company, I refuse to work for someone else, even if they have 1% of my company I'll buy that at any price. I'm making so much money it doesn't matter anyway, and there are ways to get them to sell you shares. I dilute shares by issuing new shares and buying it all with my personal funds. I keep on doing this and after a while,, the AI realizes that they're losing money and agrees to sell to me at ridiculous prices, but I'll take it.

[therealevan]

Finance is very complicated and a lot of the features that players mentioned would be either unnecessary or very hard to implement well. Like the banks limiting the loan amount based on your total assets, I don't see a problem with that. The bank has no idea what you're going to do with the money and can't predict if your investments will be profitable or not. I've bought out competitors before just to eliminate retail competition or gain tech, in almost all cases this produced big short term losses. If you have access to unlimited, or nearly unlimited money, then the game becomes too easy. It's easy enough to take over companies, the only thing preventing you is the money needed. And most companies do have to issue shares to buy a company.

Yes debt financing is usually a good deal, which is why it would make the game too easy if you could borrow more than currently allowed, which is already a lot. The AI doesn't seem to borrow a lot, but I always manage to max out my limit at the beginning of games. Even at 10% interest rates, my returns are greater than that. I think the biggest dilemma I have is how much of my credit limit I should use to buy back company stock because I know the stock is going to become more valuable over time, but spending that money will slow down expansion. I always end up with 100% of my company, I refuse to work for someone else, even if they have 1% of my company I'll buy that at any price. I'm making so much money it doesn't matter anyway, and there are ways to get them to sell you shares. I dilute shares by issuing new shares and buying it all with my personal funds. I keep on doing this and after a while,, the AI realizes that they're losing money and agrees to sell to me at ridiculous prices, but I'll take it.

An interesting take on finances/banking, while I hardly agree to any to any of it, I will still pitch my counter argument.

There are many reasons why an improved/advanced banking feature in the game should exist, many of these reasons have been discussed before but I'll list a few of them:

1) Companies operating with balance sheets on low liquidity can use revolving credit lines or other forms of short term loans to cover the need for having cash on hand to pay for expenses. This is translated in game for players who have a very aggressive or rapid business expansion strategy that require a lot cash over a short period of time.

Therein lays the problems, the formula of basing how much of a loan a player can acquire based off of their assets makes zero sense because the bank in game can't foreclose on assets if the player runs out of money. You are just simply prompted with the "You have run out of money" window and are given the three options.

2) Why are floating rates even in this game to begin with? I get that for some players who are very talented with the game can draw their entire loan out, use it, and pay it back within a year hardly feel a burn from a floating 9-11% rate, but what about players who don't do that? Loan rates should be locked regardless, not only does it give the game's lean loan system a more proper feel but it can give you a more sense of efficiency for getting a 3% during a recession and a 10% in a booming economy. (those numbers can be interchangeable if the interest rate wasn't so correlating to the economy or loans were given on a company by company basis).

3) "If you have access to unlimited, or nearly unlimited money, then the game becomes too easy. " This I do agree with which is why the current loan formula should be completely overhauled.

4) "I always end up with 100% of my company, I refuse to work for someone else, even if they have 1% of my company I'll buy that at any price. I'm making so much money it doesn't matter anyway, and there are ways to get them to sell you shares. I dilute shares by issuing new shares and buying it all with my personal funds. I keep on doing this and after a while,, the AI realizes that they're losing money and agrees to sell to me at ridiculous prices, but I'll take it."

That's just exploiting game mechanics....

[anjali]

i agree with azxcvbnm321, its either too complex to implement or for some of the other suggestions not realty based. and thats what the game is all about, to make it as real as possible.

unlimited loans, loans exceeding a max LtV? doesnt exist in real life unless you very special.
you only got 3 options when you run out of money? well be happy that you atleast got choices .. no money and lotsa assets in real life = chapter 11, you bust! if you get to the point that you have to choose one of the 3 options, you deserve to be punished as you somehow didnt took precaution to not let this happen. lets see ...

1) Companies operating with balance sheets on low liquidity can use revolving credit lines or other forms of short term loans to cover the need for having cash on hand to pay for expenses. This is translated in game for players who have a very aggressive or rapid business expansion strategy that require a lot cash over a short period of time.

yes you got this ... issue shares. you can not loan out more then 75% LtV thats a bad loan no bank will give you in real life. and thats top notch for a regular company, most businesses can not take onto more then 50% LtV so hence 50% LtV ingame is acceptable. because you dont even have to build capital reserve ingame. you dont even have to pass an acid test nor any other means a bank will use to determine if you are able to repay so be happy its 50% you can loan out.

2) Why are floating rates even in this game to begin with? I get that for some players who are very talented with the game can draw their entire loan out, use it, and pay it back within a year hardly feel a burn from a floating 9-11% rate, but what about players who don't do that? Loan rates should be locked regardless, not only does it give the game's lean loan system a more proper feel but it can give you a more sense of efficiency for getting a 3% during a recession and a 10% in a booming economy. (those numbers can be interchangeable if the interest rate wasn't so correlating to the economy or loans were given on a company by company basis).

the interest is floating usually. locked loans dont exist, sure irl are certain loans which have kinda a "fixed" loan rate, but its not totally fixed either and only runs for 10 years then interest rate gonna change. while higher interest rates be nice for high LtV loans like IRL, its kinda hard to implement i d say. and there wouldnt be much of a difference to the game play if ya pay 1% more interest. so it would be waste of ressources to rewrite the whole economics engine just for this 1% higher interest on high LtV loans.
loans given on a company to company basis would be kinda impossible to implement, too many factors that you just simply can not level out in a game to make it real. like your sales skill, your accounting skills to make the bank believe your numbers, so they give you a loan, but still they never gonna break their LtV policy for a regular company. and interest rates are changing regarding to economy, but also depends on the central bank chief. if he is for economy growth, he mostlikely be pro inflation and gonna drive down the interest rate to make money cheap, hence inflation, if the chief of central bank doesnt like inflation, he gonna make money more expensive by raising interest rate, driving down the inflation, which in return will reduce the growth rate.

4) "I always end up with 100% of my company, I refuse to work for someone else, even if they have 1% of my company I'll buy that at any price. I'm making so much money it doesn't matter anyway, and there are ways to get them to sell you shares. I dilute shares by issuing new shares and buying it all with my personal funds. I keep on doing this and after a while,, the AI realizes that they're losing money and agrees to sell to me at ridiculous prices, but I'll take it."

That's just exploiting game mechanics....

ok i agree that this is exploiting game mechanics, personally i dont care about someone has 20% of the company, they financed the growth so they shall have their fair share, irl i d be fine with handing them their 7% for pref shares couldnt have done it without them. ingame, well call me greedy, they only get 3% but this is more because else i am sitting on too much personal cash and nothing i can do with it then just let it be taken by inflation. but i usually dont buy back shares with the company. if there are shares public availible i buy them persoanlly as long as i ve below 80% and above 80% only if they are totally undervalued or if i got too much personal cash and too high inflation, then i buy shares or even issue new shares to use the cash before its eaten by inflation.

[azxcvbnm321]

1) Companies operating with balance sheets on low liquidity can use revolving credit lines or other forms of short term loans to cover the need for having cash on hand to pay for expenses. This is translated in game for players who have a very aggressive or rapid business expansion strategy that require a lot cash over a short period of time.

Therein lays the problems, the formula of basing how much of a loan a player can acquire based off of their assets makes zero sense because the bank in game can't foreclose on assets if the player runs out of money. You are just simply prompted with the "You have run out of money" window and are given the three options.

How else is the bank supposed to figure out how much to loan you? How is the bank supposed to read your mind and understand your future production plans and how you're going to use that money? I don't know of any other practical way for the bank to determine your maximum loan. If you do, then please share.

2) Why are floating rates even in this game to begin with? I get that for some players who are very talented with the game can draw their entire loan out, use it, and pay it back within a year hardly feel a burn from a floating 9-11% rate, but what about players who don't do that? Loan rates should be locked regardless, not only does it give the game's lean loan system a more proper feel but it can give you a more sense of efficiency for getting a 3% during a recession and a 10% in a booming economy. (those numbers can be interchangeable if the interest rate wasn't so correlating to the economy or loans were given on a company by company basis).

I agree that fixed loans or issuing bonds with a fixed rate would give another mechanic to the system. But again, I don't think it makes enough of a difference, and in actual gameplay, I'll borrow no matter the interest rate at the beginning to expand my company. All that would be different would be that I'm locked into that interest rate for 5 years or so. No, you can't buy back the debt or retire the debt without paying a premium if the interest rate goes down. Some corporate bonds have a feature that allows the company to buy back (retire) its debt at par (no premium), but that's usually after a minimum of 5 years. Secondly, they have to pay for this feature by offering a higher interest rate to begin with. So in short, locking in loans for 1 or 5 years wouldn't add that much to gameplay and adding in even more features like buying back debt at market prices would be very difficult to do.

That's just exploiting game mechanics....

If you want to see it that way. I just see it as my goal, to own 100% of my company, and I have to pay a lot of money to do that. The people who sell are getting 3x+ over market price, that sounds more than fair to me. And stock buybacks are used all the time and are just a different way of issuing dividends. Everyone who owns stock benefits because now they own more of the company outright. As for share issues, I have to spend my own money to buy the shares, thus I'm contributing more capital to the company, which means I should own more of the company, which does happen. I don't see what's unfair or exploitative.

[Finn80]

I think something needs to change with current banking system, just not sure what.... As it stands with new current subsidiary DLC it is possible to borrow ANY AMOUNT of money you want irregardless of LtV %, as long as you have the required $20 million capital to found new sub and $5 million to buyout all stock after an IPO. Its a game exploit, that I don't use but its there..

This is the good and bad, in my opinion, of the sub DLC in a nutshell. In my games I start with very low capital, the challenge to make a steady profit and fund small incremental growth to become an industry giant. Using the limited capital to lay the financial foundation, to me makes it interesting. I need to get my R&D rolling, but where am I going to find the $10 mill, and fund it? Or I have my R&D done now I need $15 mill for a factory and warehouse....are questions I like finding the solutions too. Most of the time the capital is borrowed from the bank, but the credit line is a limiting factor, AS IT SHOULD BE. However, as I'm tinkering with the new DLC, I find that after I have the required start-up cash for subsidiaries I start spinning them of, and maxing out their credit lines too, more or less fueling infinite "borrowed" growth. Not sure why a brand new start-up sub gets a 1:1 credit line with the starting cash? maybe that's a tweek/fix? Or a up front (cash out of pocket) "signing bonus" for newly hired CEO's that would be cost prohibitive to start sub after sub after sub.