Learn banking
Learn how banks really work
Free, plain-English lessons on how banks work: net interest margin, CET1 ratio, bank runs, yield curve inversion, Basel III, G-SIBs and why banks fail.
Take office →Banks are simple in principle (borrow short, lend long, keep enough capital and cash to survive being wrong) and fiendishly subtle in practice. These free lessons explain the real mechanics in plain English, with examples from history and from Going Concern, the banking simulator where you can try every idea yourself.
PL
How do banks make money?Net interest margin, fees, costs and credit losses: the four lines that decide a bank's profit.
CAP
What is the CET1 ratio?Bank capital explained simply: risk-weighted assets, buffers and why thin capital kills.
LIQ
How bank runs happenFrom Northern Rock's queues to SVB's app-speed run, and what actually stops one.
MKT
The inverted yield curveWhy short rates above long rates forecast recessions and squeeze bank margins.
RISK
Why banks failThe six classic killers, from property booms to rogue traders.
LEAGUE
What is a G-SIB?“Too big to fail”: how global systemically important banks are chosen and regulated.
ALCO
Interest-rate risk & durationWhy rising rates can sink a bank that never made a bad loan.
REG
Basel III explainedCapital, leverage and liquidity rules after 2008, in one page.
Banking glossary
| Term | What it means |
|---|---|
| Balance sheet | What a bank owns (assets: loans, bonds, cash) and how it is funded (liabilities such as deposits and borrowing, plus equity). Assets always equal liabilities plus equity. |
| Net interest margin (NIM) | Interest earned minus interest paid, as a share of interest-earning assets. The core of most banks' income. |
| CET1 ratio | Common Equity Tier 1 capital divided by risk-weighted assets: the headline measure of a bank's solvency. |
| Risk-weighted assets (RWA) | Assets scaled by how risky regulators judge them: riskier loans need more capital behind them. |
| Leverage ratio | Tier 1 capital divided by total exposure, with no risk weights. A simple backstop to the CET1 ratio. |
| Liquidity Coverage Ratio (LCR) | High-quality liquid assets divided by the cash a bank could lose in 30 days of stress. Must be at least 100%. |
| Duration | How sensitive a bond's price is to interest rates. A duration of 7 means roughly a 7% price fall for a 1 percentage-point rise in rates. |
| Non-performing loan (NPL) | A loan that has stopped paying (typically 90+ days overdue) or is unlikely to be repaid in full. |
| Provision / ECL | Money set aside for expected credit losses before they happen (IFRS 9 “expected credit loss”). |
| Cost/income ratio | Operating costs divided by revenue. Under 60% is lean; above 75% means costs are eating the bank. |
| G-SIB | Global Systemically Important Bank: one of roughly 30 banks whose failure would threaten the world economy, and which must hold extra capital. |
| Yield curve | Interest rates across maturities. Normally long rates are above short rates; when short rates are higher, the curve is “inverted”. |
Try it in Going Concern: every term above is a live number on the desk. BS shows the balance sheet and the ratios, ALCO the curve and the gap, LIQ the coverage and the survival horizon. Take office.
The appointment
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A bank in a real jurisdiction in a real year, run from a terminal: the funding stack, the capital stack, the credit desk, the agencies, the supervisor and the board. Free, in the browser.
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