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Master of Agribusiness

Simulation Models of Bank Risk Management Using Data Table and Scenario Manager

Kelley Ayres, Minden, NE, defended his thesis, “Simulation Models of Bank Risk Management Using Data Table and Scenario Manager,” on April 20th. He is the President of First Bank and Trust Company in Minden. Ayres is a spring graduate from Kansas State University with a Master of Agribusiness (MAB) degree.

First Bank and Trust Company is a community bank that was chartered in 1883.  Minden is a rural community with strong roots in production agriculture, and Kearney County is consistently one of the leaders in agricultural production for the state. This close relationship with production agriculture creates potential risks to First Bank and Trust Company when markets are volatile that can affect the overall financial health of the bank.

“Properly ascertaining and managing many risk factors is essential to improve income opportunities as well as protect the capital of the bank,” Ayres said. “The current management tools used by First Bank and Trust Company are very robust, but they are more complex than necessary given the risk profile of the bank. The complexity of these tools demands a lot of time to produce information for management that satisfy regulatory requirements.”

Ayres created a model to simplify the process of measuring various risk factors and present the information in a clear and concise manner.

“Even though the process is simplified, the model is comprehensive and includes the major risk factors of the bank. Cumulative distribution functions quantify scenarios that may capture worst case situations in which multiple adverse conditions are present, as well as individual catastrophic risk occurrences,” Ayres said.

The model can be used for a wide range of what-if alternatives as an individual bank may see fit. It is adequate to meet present regulatory requirements for a community bank, such as First Bank and Trust Company.

Dr. Bryan Schurle, Professor of Agricultural Economics and Ayres’ thesis advisor, said, “This is example of the outstanding work that can result when the MAB program content meshes well with the experience and knowledge brought to the program by the student. Kelley Ayres has been a bank president for 20 years, and his experience combined with techniques and approaches taught in the MAB program produced a great stress test simulator for his bank.”

The full thesis publication can be found online on Kansas State University’s Research Exchange at http://hdl.handle.net/2097/18969.