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Friendly Savings Bank

 Holger Spamann and Stanley Ragalevsky  
Product number:
June 2018
39 pages
Product Type:
Role Play
Link to Faculty Author Page:
Educators / Non-Profits:


The Friendly Savings Bank simulation takes place in the fictional state of Ames, in the working-class town of Langdell. The Friendly Savings Bank, a mutual bank, has been a fixture in the community for over 100 years, and has slowly but steadily amassed nearly $50 million in equity capital from retained earnings and profits. The 10-member Board of Directors has largely left the management of the Bank to the Bank CEO, Peter Bauer, and Chairman Matthew Stearns. While the Bank is in a better capital position than many of its peers, Bauer and Stearns want to convert the Bank to a public company in an IPO. They cite the fact that Friendly Bank has limited access to capital because of its structure, and increased regulation requirements around money laundering, cyber security, and consumer compliance puts the Bank at risk.

While Bauer and Stearns both have good reputations in Langdell, one dissenting board member, Director Reese, is against the move. He argues that the conversion would change the mission and nature of the Bank, that Friendly Bank is in a solid fiscal position, and that both the Board and the CEO have a conflict of interest since they will benefit financially from the move.

Moving to stock from a mutual form requires the approval of the State Commissioner of Banks. Pursuant to 209 Code of Ames Regulation 33.04(2), “[t]he commissioner shall … approve the application and the plan of conversion if he finds the conversion fair to depositors, and that the bank's deposits will be adequately insured, that other banks will not be adversely affected and that the public's access to credit within the bank's community will not be adversely affected.” (emphasis added) The Commissioner is also concerned that Friendly Savings Bank management is looking to “cash out,” but she is worried that she may not be justified in substituting her judgment for that of the Bank’s Board of Directors where it concerns the Bank’s strategy and direction.

Students play one of three roles: lawyers advising the Management, the Dissenters, and the Regulators. They must prepare for a public hearing during which the Regulators will hear arguments from Bank Management and the Dissenters in preparation for the Commissioner’s determination.

Learning Objectives

Appreciate a greater variety of organizational forms beyond the standard corporation, and reflect on their advantages and disadvantages. Mutual banks and insurance companies are the most important forms of business organizations that are not shareholder-controlled corporations. The mutual’s customer control has advantages and disadvantages. Students thinking about the merits of the conversion must inevitably reflect on the merits of these different organizational forms. This should lead them to a deeper understanding of the standard business corporation, which tends to be the only organization that we study in corporate law classes.
Understand the context in which law is practiced. The purpose of this exercise is not to have students advocate for a particular outcome or interest, but to allow them to better understand that a fair and just resolution of legal issues involves not only knowing the law but also being able to apply it after consideration of the context in which those issues arise. Mastery of the law alone is not the only consideration and does not necessarily guarantee effective representation or a just result.
Experience ethical dilemmas. Students participating in this simulation are encouraged to understand that what is legal may not be just or moral. What most accept as permissible may not be right; just because something can be done does not mean that it should be done.
Experience uneven playing fields. Students will understand that many factors—including access to information, available resources, and political considerations—affect a how a legal matter is managed and ultimately resolved.

Subjects Covered 

Mutual Banks, Legal Profession, Corporations, Financial Regulation, Business Ethics


Geographic: United States

Industry: Banking

Event Year Begin: April 2018

Hard Copy

For hard copies, please contact the HLS Case Studies Program at hlscasestudies@law.harvard.edu or +1-617-496-1316. When ordering, please let us know how many copies of confidential materials that you will need.


To obtain accessible versions of our products for use by those with disabilities, please contact the HLS Case Studies Program at hlscasestudies@law.harvard.edu or +1-617-496-1316.

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