An alternate world: the development of a virtual U.S. Bank.

Taylor, James J.

INTRODUCTION

American academic lore identifies the ideal educational model as having someone like Mark Hopkins on one end of a log and a student on the other (Kunitz, 1964). Unfortunately the image overlooks the use of technology developed to overcome the limitations of time and space inherent in the image. A lifespan limits even the work of the outstanding, and on any day a professor is able to only sit on so many logs and see so many students. Even in the 19th century, when Mark Hopkins lived, printed texts and student notes could be substituted for the professor on the log. Since then technology such as TV, videos, and the WEB have been used to supplement, and sometimes supplant, the work of educators. While perhaps arguably imperfect, such technology provides ways to overcome some of the limitations of time and space. This article provides an example of using a new but widely available technology, the WEB, to support modifying educational material developed for one country and historical context, so that it can be used in other countries and contexts.

BIZ/ED AND VIRTUAL BANKING

In 1996, the Biz/ed site (www.bized.co.uk) was started in the United Kingdom. The objective was the development of a broad set of Internet-based learning materials that could be freely used in support of business education across the U.K. In 2002 the U.K.'s Joint Information Systems Committee (JISC), a consortium of publically funded educational entities, agreed to further support the site. In 2006 the site was purchased by Thomson Learning (now Cengage Learning). Since its founding, the site has developed an extensive body of business education materials in economics, finance, accounting, and tourism. For example the site offers free access to an extensive unit on financial ratio analysis that can be easily used in undergraduate and graduate business programs (http://www.bized.co.uk / compfact / ratios / index.htm). A similar unit on cash flow includes an animated representation of cash flow as well as a cash flow game using an example from a small business.

The Biz/ed site has also developed a set of "Virtual Worlds" where students can try to run a factory, a family farm, or even a virtual country. One of the best known of the Virtual Worlds is the Virtual Bank of Biz/ed which provides an extensive set of educational material about both commercial banking and central banking within the U.K.

Texts on money and banking written for the United States typically mention that banking in the U.S. is similar to banking in the U.K., especially when compared to banking practices developed in Germany, Japan, and France (Ritter, Silber, & Udell, 2004; Ceccheti, 2007). The typical money and banking text in the U.S. is over 600 pages long, has twenty or more chapters, and is priced between $125 and $200. There is too much material for a standard one semester course. In a search for alternatives to the use of such texts, I researched the Virtual Bank of Biz/ed at the Biz/ed WEB site to determine whether it could be used by students in the U.S. in place of a standard text on money and banking.

I was disappointed. While some of the Biz/ed sections could be used in a U.S. based course in money and banking, enough differences existed making it impossible to ask U.S. students to simply adjust to the differences.

DIFFERENCES BETWEEN U.S. BANKING AND U.K. BANKING

Closer examination of the Virtual Bank of Biz/ed site (http://www.bized.co.uk/ virtual/bank/index.htm) brought to light a number of significant differences between the banking systems in the two countries. The initial differences involved spelling practices.

U.S. Students could be expected to adapt to spelling differences and introductory college math texts often note the differences between U.S. and U.K. definitions of numbers. However it also became clear the two countries used different words to describe similar functionality.

Using the Virtual Bank of Biz/ed in its existing form would also require learning different words and terms. In addition, as words like "President" and "Prime Minister" make their way on the list of differences, it became apparent that there were additional differences affecting the way banks in the U.S. and the U.K. operate. Banks in the U.S. and the U.K. work with different tax systems and even with different definitions of money.

Identification of these kinds of differences led to the understanding that the very political structure in each country made for differences in banking practice.

It quickly became clear that differences between a presidential government and a parliamentary government affected banks, and by extension, also affected educational material intended to provide instruction about banking. This led to consideration of the different structures in the two banking systems.

Finally modern countries develop central banks as a mechanism to influence a country's level of economic activity. A central bank tries to accomplish this by influencing the growth of the money supply, the level of interest rates, and the level of inflation. Given the other differences identified, it was clear that both the U.S. and the U.K. would have differences in the way central banking was carried out.

The range of differences between U.S. banking practice and U.K. banking practice was such that it was clear that material developed to help educate future bankers in the United Kingdom would not be useful in the United States without significant modification. However, identification of the differences that had to be considered left some hope that the WEB pages that represented the Virtual Bank of Biz/ed could be modified to develop a set of pages that could be used in the U.S. With that understanding I wrote to the Biz/ed site editor and asked for permission to use the existing Virtual Bank of Biz/ed as a model for a Virtual U.S. Bank.

Understandably the Biz/ed site was unwilling to lose copyright control of the Virtual Bank of Biz/ed. The Biz/ed site had noticed that over the years more and more people from outside the U.K. were using their site. They recognized that by offering a separate Virtual U.S. Bank of Biz/ed, they could increase the site's appeal to American students. The Biz/ed then asked whether I would be willing to develop a Virtual U.S. Bank which they would agree to add to the Biz/ed site. I considered the proposal and after some discussion we drew up an agreement.

The pay was minimal but an agreement was included that my work and my university would be recognized by the Virtual U.S. Bank of Biz/ed. The agreement also included an understanding that if the Biz/ed site would start charging for access to the Virtual U.S. Bank, the students at my university would receive five years of free access to the site.

DEVELOPMENT OF THE SITE

The development of the new site was quickly initiated. An electronic copy of the Virtual Bank of Biz/ed site was transmitted as an e-mail attachment. The decision was made to make the changes in Microsoft Word rather than by using HTML or a WEB development program. Although the other approaches were possible, it was easier to work directly in MS Word and leave the actual development of the new site to the Biz/ed support staff.

Review of the Virtual Bank site showed that it had several component units for which different development strategies would be required. The first component was the Data Unit. This Unit had an extensive set of time series data related to U.K. banking. While the data was correct, it had no direct relevance to U.S. banking. In addition the data had been incorporated in the existing virtual bank along with its own site search engine. Creation of a similar unit within the Virtual U.S. Bank of Biz/ed would have been possible but a simpler alternative was chosen. The Saint Louis Federal Reserve District (http://research.stlouisfed.org/fred2/) maintains over 15,000 sets of various time series data that are easily accessible. Instead of copying this kind of data within the Virtual U.S. Bank of Biz/ed, instructions were developed about how to use the Saint Louis site to find needed macroeconomic data.

The original virtual bank had a Glossary Unit with an extensive list of financial terms. This was a real positive but spelling convention issues were again raised. To simplify the approach, the decision was made to continue to use the spelling conventions of the U.K. but also, where necessary, identify alternate ways to spell a word. In addition a brief discussion of this approach was included at the beginning of the Unit, explaining the approach and asking for the consideration of those from outside the U.K.

The glossary unit also included a section of over 230 economic diagrams. These were all individually reviewed to determine whether they could be use with the Virtual U.S. Bank of Biz/ed. A few were found that utilized the sign for the U.K. pound ([pounds sterling]). Again, to simplify the WEB development, the decision was made to make all components currency neutral. In effect the currency identifier was dropped everywhere except in those sections of the site that discussed currency exchange issues.

This raised the question of how to deal with the amounts in the money problems that were used to test student understanding. Fortunately, even though the British Pound will buy more than a U.S. Dollar, it was not necessary to change any of the amounts in any of the money problems. The problems gave the same answers whether the person working on the problem was thinking in dollars or pounds.

The glossary unit also contained an extensive section on acronyms. Again in the interest of simplicity, all existing acronyms were left in place, even those that were only used in the U.K. Instead acronyms used in U.S. banking were added. This way the list can be used for both virtual banks.

The Virtual Bank of Biz/ed also had a separate "In the News" Unit that incorporated a large number of articles on issues in finance, economics, and banking. Similar to the approach used with the Data Unit, explanations of how to search for and find such material on the WEB were substituted.

CURRENT STATE OF THE PROJECT

Doing the actual review and conversion of the over 200 individual WEB pages took the most time. A few pages required only one or two short changes to the header. About half the pages needed one or two sentences and sometimes a whole paragraph changed. Another half of the pages required extensive changes, especially those that summarized the history of the U.S. Federal Reserve and the politics behind U.S. banking practice. Once these changes were made and documented, the files were returned to Biz/ed, again as an e-mail attachment. As of this point in time (8/31/2008) the Biz/ed Website has set up the initial Virtual U.S. Bank of Biz/ed. This site is still under security access because it is still in the process of being finalized. In addition the site has had a complete edit. While it is good to be able to see work that has already been accomplished, I look forward to the completion of the project within a few months.

CONCLUSION

Development of the Virtual U.S. Bank of Biz/ed has been a significant learning experience for me. I have had to opportunity to explore differences in banking practice in two countries that are the center of much of the world's banking. That exploration has given me a better appreciation of the validity of different approaches to banking. I have also been able to gain significant experience in developing a complex, online education effort. I have also had the opportunity of working with a major Internet site that supports business education. Given the value of this experience, I recommend that as we search for websites for material to use to support our educational efforts, we also broaden our view and look for situations where we could become involved in modifying Internet material in support of a wider audience.

REFERENCES

Biz/ed. Retrieved April 15, 2008 from http://www.bized.co.uk/

Ceccheti, S. G. (2007). Money, Banking, and Financial Markets. (2nd ed.) New York: McGraw-Hill / Irwin.

Current Virtual Bank of Biz/ed. Retrieved April 15, 2008 from http://www.bized.co.uk/virtual/bank/index.htm

Example of ratio education. Retrieved April 15, 2008 from http://www.bized.co.uk/compfact/ratios/index.htm

Example of cash flow education. Retrieved April 15, 2008 from http://www.bized.co.uk/learn/business/accounting/cashflow/simulation/ index.htm

Friedman, David H. Money and Banking (5th ed.) Washington DC: American Bankers Association

History of the Biz/ed Website. Retrieved April 15, 2008 from http://www.bized.co.uk/homeinfo/aboutus.htm

Kunitz, S. J. (1964). American Authors 1600--1900: A Biographical Dictionary of American Literature. New York: H. W. Wilson Company.

Ritter, L. S., Silber, W. L., & Udell, G. F. (2004). Principles of Money, Banking, and Financial Markets. (11th ed.) Pearson / Addison-Wesley.

St. Louis Federal Reserve Bank. Retrieved April 15, 2008 from http://research.stlouisfed.org/fred2/

James J. Taylor, University of Guam

Table 1: Spelling and Numbering Differences

United States Practice United Kingdom Practice

Specializing Specialising
Defense Defence
Organization Organisation
Labor Labour
Judgment Judgement
Check Cheque
Behavior Behaviour
Billion 1,000,000,000 Billion 1,000,000,000,000
The "Short Scale" Approach The "Long Scale" Approach
 to a billion to a billion

Note: in 1974 the UK government adopted the "Short Scale" approach

Table 2: Differences in Word Usage

United States Practice United Kingdom Practice

Financial Leverage Financial Gearing
Unemployed Claimant
U.S. Treasury Bonds Gilts
Social Security National Insurance
President Prime Minister
Secretary of the Treasury Chancellor of the Exchequer
Federal Open Market Committee Monetary Policy Committee
U.S. Dollar $ Pound Sterling [pounds sterling]
Budget Deficit Public Sector Net Cash Requirement
Investment evaluation Investment appraisal
Points (on a test) Marks (on a test)
Gasoline Petrol
Internal Revenue Service Inland Revenue
Corporation Public Limited (corporation)
Sole proprietor Sole Trader

Table 3: Differences in Definitions of Money and Taxation Usage

--"M0" and "M4" are the traditional definitions of money used in
the U.K. M0 is the U.K.'s "narrow money supply" defined only as
cash in circulation and on deposit with the Bank of England. M4 is
the U.K.'s "broad" money supply and is defined as M0 plus money
held in all bank accounts including checking and savings accounts.
The U.S. defines money differently, as "M1" and "M2". M1 represents
the narrow money supply but it is made up of cash in circulation
plus checking account deposits, something quite different than M0.
M2 includes M1 plus only small, time related deposits (under
$100,000), plus savings deposits, and retail money market funds,
something much less than M4. Differences in measures of the money
supply are important because they determine what elements a central
bank will be trying to influence as it takes action to affect the
overall money supply.

--Value Added Tax: This kind of tax is used in the U.K. but not the
U.S.

--Monitory Regulatory Committee (MRC): This committee was set up in
the U.K. to determine how the U.K. would relate to development of
the European Union and the common European currency. The U.S. had
less immediate concerns about the development of the Euro.

Table 4: Difference in the Political Systems

--When the Federal Government was set up by the States, a
tripartite structure was created with distinct legislative,
executive, and judicial branches. Because of the way the branches
were separated and because of the use of overlapping, and fixed
terms for presidential and legislative elections, it was easily
possible in the U.S. for one political party to be in control of
the executive branch and a different political party to be in
control of the legislative branch. In practice this has meant that
the executive branch and the legislative branch can, at the same
time, be advocating contrary views on economic policy. The lack of
a consistent economic policy supported by common executive and
legislature action created difficulties for bankers.

--On the other hand the U.K. uses a parliamentary form of
government in which the prime minister comes out of the majority
party or majority coalition. Elections can be held when the prime
minister no longer has the majority support in parliament or the
ruling party no longer has the support of voters. This means the
central executive can more easily speak with a single voice about
economic policy.

Table 5: Differences in Commercial Banking Structures

--When the States set up the Federal Government, the States kept
many powers including the power to issue bank charters. Since the
Federal Government was also able to issue bank charters, this meant
that the U.S. developed a "dual" banking system consisting of
federal banks and state banks. In addition, because of the size of
the U.S., the large number of states, and laws against branch
banking, the U.S. developed a banking system characterized by the
large number of smaller, community based banks. For many years no
bank was able to operate across state lines. This made it more
difficult for banks to service large commercial enterprises.

--The U.K. and other countries typically have developed systems
with a few large banks with multiple branches. In contrast to the
U.S. banking system, U.K. banks could more easily service loans for
large companies.

Table 6: Differences in Central Banking Practice

--The U.S. Federal Reserve was created in 1913 after several
earlier attempts to create a central bank for the U.S. The "Fed"
was set up as a quasi governmental entity with significant
political independence from Congress and the Executive Branch. The
Federal Reserve Chair and six others are appointed by the President
to the Board of Governors. Because of the size of the U.S., the Fed
is further divided into twelve districts each with its own nine
member board. The District Board chooses a District President who,
with staff, is responsible for overseeing commercial bank
operations within the district as well as assisting with clearing
checks between banks. The Federal Open Market Committee (FOMC) made
up of the Board of Governors and five presidents chosen from the
districts regularly meets to set interest rates and monetary policy
for the country.

--The Bank of England (BOE) dates to 1694. Since its foundation the
BOE has gone through several restructurings. Most recently a
Monetary Policy Committee (MPC) was given responsibility to set
interest rates. The BOE is expected to manage interest rates and
inflation rates within a set of targets imposed by Parliament. This
is unlike the Fed which has resisted the imposition of targets in
the name of greater operational flexibility. In the U.K. check
clearing is handled by a consortium of commercial banks rather than
the BOE. In addition, unlike the Fed, bank regulation is the
responsibility of another government agency.