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How banks, interest, reserves, capital and bailouts work.
12 entries
1100s–1600s
Merchants pool money to send ships, and a share of a voyage becomes a share of a company.
The Medici Bank opened in Florence in 1397 and grew branches from London to Rome. It moved money with bills of exchange and lent to merchants and rulers, often against pledged goods or jewels.
The Church banned usury, charging interest on a loan, so bankers built their reward into the exchange rate between currencies. Interest itself is far older: the Code of Hammurabi, around 1750 BC, already capped rates on loans of grain and silver.
💡 Why it made sense then
Trade over long distances needed credit, and lenders needed a reward for waiting and a way to get repaid if the borrower couldn't pay.
Ideas it gave us
An interest rate is the price of borrowing money, stated as a percentage of the loan per year. For savers it is the reward for lending their money to a bank.
🎮 Game savings earn a little under the Federal Reserve's published rate on reserve balances; margin loans cost more than it.
Open the full entry →Collateral is an asset a borrower pledges to a lender, which the lender can take or sell if the loan isn't repaid.
🎮 Your shares are the collateral for a margin loan, and a short sale needs collateral of 150% of the shares' value, held by the bank until you buy them back.
Open the full entry →1600s–1790s
Shares trade in coffee houses and bourses, the first bubbles burst, and governments borrow from the public.
In the mid-1600s, London merchants left gold with goldsmiths for safekeeping and got receipts that began to change hands like money.
Goldsmiths noticed that depositors rarely all came back at once, so they lent part of the gold out at interest and kept the rest in reserve.
💡 Why it made sense then
Gold sitting in a vault earned nothing. Lending most of it out was profitable, as long as not everyone asked for their money on the same day.
Ideas it gave us
Fractional reserve banking is the system in which banks keep only part of their deposits as cash reserves and lend out the rest, which creates new money in the economy.
🎮 The game's bank lends out part of what savers deposit, like a real bank, and keeps the rest at the Federal Reserve.
Open the full entry →1929–1950s
The Great Depression leads to deposit insurance, securities law, margin rules and modern economic statistics.
From 1929 to 1933, US output collapsed and prices fell by roughly a quarter. Waves of bank runs closed thousands of banks, and unemployment reached about 25% in 1933.
Falling prices made debts harder to repay, which led to more defaults and more failures.
💡 Why it made sense then
It showed how panics, falling prices and bank failures can feed on each other, and it shaped the rules that followed.
Ideas it gave us
Deflation is a sustained fall in the general price level. It sounds good, but it can make people delay spending and make debts harder to pay, which deepens downturns.
🎮 Game prices never deflate automatically; only falling demand pushes listings down.
Open the full entry →A bank run happens when many depositors withdraw their money at once because they fear the bank will fail, which can make it fail even if it was sound.
🎮 The game's bank can fail if losses on its loans wipe out its capital. Savings are insured only up to $25,000, so large savers have reason to worry when losses grow.
Open the full entry →A recession is a significant, widespread fall in economic activity that lasts more than a few months. A common rule of thumb is two quarters in a row of falling real GDP.
🎮 The game has no recessions, but a long slide in most listings, or a bank failure, feels much the same: prices fall and loans are called in.
Open the full entry →The unemployment rate is the share of people in the labour force who don't have a job but are looking for one. People not looking aren't counted.
🎮 The game has no jobs, but the bot agency lets you hire a bot you've beaten to trade for you for a week.
Open the full entry →The Banking Act of 1933, often called Glass-Steagall, created the Federal Deposit Insurance Corporation and separated commercial from investment banking. From 1934, deposits were insured up to $2,500.
💡 Why it made sense then
If depositors know they'll be repaid, they have no reason to run. Critics warned that insured banks might take more risk.
🎮 In Journey Shares
Savings at the game's bank are insured up to $25,000.
Ideas it gave us
Deposit insurance guarantees that savers get their money back, up to a limit, if their bank fails. In the US the FDIC insures up to $250,000 per depositor, per bank.
🎮 Savings at the game's bank are insured up to $25,000. If the bank fails, savings above that can lose part of their value.
Open the full entry →A bank run happens when many depositors withdraw their money at once because they fear the bank will fail, which can make it fail even if it was sound.
🎮 The game's bank can fail if losses on its loans wipe out its capital. Savings are insured only up to $25,000, so large savers have reason to worry when losses grow.
Open the full entry →Moral hazard is the tendency to take more risk when someone else bears the cost if things go wrong, such as a bank expecting a bailout or a driver who is fully insured.
🎮 The game's bank is bailed out when it fails, which shows the moral hazard: every rescue adds new money and leaves the same rules in place.
Open the full entry →1950s–1990s
Risk gets measured, options get a formula, and index funds and ETFs bring the whole market to everyone.
In 1964 William Sharpe (and others around the same time) showed that investors should be paid for risk they can't diversify away, measured by beta, on top of the risk-free rate.
💡 Why it made sense then
It gave investors a benchmark for whether a return was worth its risk.
Ideas it gave us
The capital asset pricing model says an investment's expected return equals the risk-free rate plus its beta times the market's extra return over that rate.
🎮 The game doesn't calculate CAPM, but the idea shows: listings that swing with the whole market should pay more to be worth holding than savings, which pay close to the risk-free rate.
Open the full entry →Beta measures how much a stock tends to move compared with the whole market: a beta of 1 moves with the market, above 1 moves more, below 1 moves less.
🎮 The game doesn't publish a beta, but you can see it at work: some listings rise and fall with the whole market, others move on their own news. ETFs tend to move like the group inside them.
Open the full entry →The risk-free rate is the return on an investment with no default risk, usually taken as the yield on short-term US Treasury bills. Every riskier investment should promise more than it.
🎮 The closest thing to a risk-free rate in the game is savings at the bank: insured up to $25,000 and paying a little under the Federal Reserve's rate.
Open the full entry →The 1973 oil embargo and later shocks pushed US inflation above 13% by 1980 while unemployment rose. Fed chair Paul Volcker raised the federal funds rate to about 20% in 1981, causing a recession that brought inflation down.
💡 Why it made sense then
Inflation had become expected and built into wages and prices, and only very high rates broke the cycle.
Ideas it gave us
Stagflation is high inflation combined with slow growth and high unemployment. It's hard to fix because raising rates to cut inflation also slows the economy further.
🎮 The game can't have stagflation in the real sense, but inflation still eats your cash when trading is quiet, which is a small taste of it.
Open the full entry →An interest rate is the price of borrowing money, stated as a percentage of the loan per year. For savers it is the reward for lending their money to a bank.
🎮 Game savings earn a little under the Federal Reserve's published rate on reserve balances; margin loans cost more than it.
Open the full entry →The Basel Committee's 1988 accord set a common minimum: banks' capital must be at least 8% of their risk-weighted assets.
💡 Why it made sense then
Banks in different countries competed under different rules, and thin capital made failures more likely.
Ideas it gave us
Capital requirements are rules that make banks fund part of their lending with their own money (equity) so they can absorb losses without failing. Under the Basel rules the minimum is 8% of risk-weighted assets.
🎮 The game's bank must keep equity of at least 8% of its loans, under the Basel rules.
Open the full entry →Fair Isaac, founded in 1956, introduced its general-purpose FICO score in 1989. Lenders adopted it to judge borrowers quickly and consistently.
💡 Why it made sense then
Scoring replaced a loan officer's judgement with a consistent formula.
Ideas it gave us
A credit score is a number, usually from 300 to 850 in the US, that estimates how likely a person is to repay debts. Higher scores get cheaper loans.
🎮 The game has no credit scores. The bank decides what you can borrow from the value of your stocks alone, the way margin lending works.
Open the full entry →2000–today
Trading moves online, costs fall to zero, and crises bring bailouts, quantitative easing and new rules.
Banks had borrowed heavily against mortgage investments. When US house prices fell, losses spread, and Lehman Brothers failed on 15 September 2008.
In October, Congress approved the $700 billion TARP rescue, and in November the Fed began buying huge amounts of bonds. The rescues stopped the panic but raised worries about rewarding risk-taking.
💡 Why it made sense then
Letting big banks collapse risked freezing credit for everyone, so governments chose to rescue them.
Ideas it gave us
A bailout is when a government or central bank gives money to a failing company or bank to keep it from collapsing, usually because its failure would hurt the wider economy.
🎮 If losses wipe out the game bank's capital it fails, calls in its loans and is bailed out at the start of the next weekly season, paid first from tax revenue.
Open the full entry →Moral hazard is the tendency to take more risk when someone else bears the cost if things go wrong, such as a bank expecting a bailout or a driver who is fully insured.
🎮 The game's bank is bailed out when it fails, which shows the moral hazard: every rescue adds new money and leaves the same rules in place.
Open the full entry →Leverage is using borrowed money to increase the size of an investment, which magnifies both gains and losses.
🎮 Borrowing on margin at the bank is leverage: with half borrowed, a 10% move in your shares is about a 20% move in your own money, up or down.
Open the full entry →Quantitative easing is when a central bank creates money to buy large amounts of bonds, pushing long-term interest rates down to support the economy when short-term rates are already near zero.
🎮 The city's 🖨️ money printer event is a joke about it; the real effect in the game comes from bailouts, which create new money when the treasury runs dry.
Open the full entry →A 2006 law allowed the Fed to pay interest on banks' reserves from 2011. The financial crisis brought it forward to October 2008, as the Fed flooded banks with reserves and needed a way to keep control of short-term rates.
💡 Why it made sense then
Paying interest on reserves let the Fed set a floor under interest rates even with trillions of dollars of reserves in the system.
🎮 In Journey Shares
The game's bank earns this rate on its spare cash, updated daily, which is where savers' interest comes from.
Ideas it gave us
Interest on reserve balances is the rate the Federal Reserve pays banks on money they keep at the Fed. It sets a floor under the rates banks lend at.
🎮 The game's bank earns the Fed's published rate on reserve balances on its spare cash, updated daily. Savers get a little under it and margin borrowers pay more.
Open the full entry →The federal funds rate is the interest rate at which US banks lend reserves to each other overnight. The Federal Reserve sets a target range for it, and it drives borrowing costs across the economy.
🎮 The game's savings and margin rates follow the Fed's interest rate on reserve balances, which moves with the federal funds rate.
Open the full entry →The Dodd-Frank Act of 2010 tightened oversight of banks, including the Volcker Rule, which bars banks from most trading for their own profit. Internationally, Basel III raised capital requirements.
💡 Why it made sense then
The crisis showed banks had too little capital and too much risky trading.
Ideas it gave us
The Volcker Rule bars US banks that take insured deposits from most trading for their own profit, and limits their stakes in hedge funds and private equity.
🎮 The game's bank never buys stocks with depositors' money. It keeps spare cash at the Fed, as the Volcker Rule and capital rules push real banks to do.
Open the full entry →Capital requirements are rules that make banks fund part of their lending with their own money (equity) so they can absorb losses without failing. Under the Basel rules the minimum is 8% of risk-weighted assets.
🎮 The game's bank must keep equity of at least 8% of its loans, under the Basel rules.
Open the full entry →In March 2020, as the pandemic hit, the Federal Reserve cut rates to near zero, began buying bonds on a vast scale and set banks' reserve requirement to zero.
💡 Why it made sense then
The economy was shutting down almost overnight, and the Fed moved to keep credit flowing.
Ideas it gave us
Quantitative easing is when a central bank creates money to buy large amounts of bonds, pushing long-term interest rates down to support the economy when short-term rates are already near zero.
🎮 The city's 🖨️ money printer event is a joke about it; the real effect in the game comes from bailouts, which create new money when the treasury runs dry.
Open the full entry →Fractional reserve banking is the system in which banks keep only part of their deposits as cash reserves and lend out the rest, which creates new money in the economy.
🎮 The game's bank lends out part of what savers deposit, like a real bank, and keeps the rest at the Federal Reserve.
Open the full entry →Silicon Valley Bank held long-term bonds that lost value as rates rose, and most of its deposits were above the insured limit. In March 2023, depositors tried to withdraw about $42 billion in a single day, and regulators closed the bank.
💡 Why it made sense then
Phones and social media let a run spread in hours instead of days.
Ideas it gave us
A bank run happens when many depositors withdraw their money at once because they fear the bank will fail, which can make it fail even if it was sound.
🎮 The game's bank can fail if losses on its loans wipe out its capital. Savings are insured only up to $25,000, so large savers have reason to worry when losses grow.
Open the full entry →🎮 Practise with $10,000 in play money
Try it in a live 3D city with play money: trade shares in real public figures, get margin-called, pay your taxes and rob a bot or two. Free, and nothing real is at stake.
For learning only. This isn't financial advice.
