Bryant (1980) and Diamond and Dybvig (1983) have provided us with the classic benchmark model for a bank run. There, an individual bank engages in maturity transformation, using demand deposits to finance long term loans, which can be liquidated in the short term only at a cost. If too many agents claim short-term liquidity needs and withdraw their demand deposits, the value of the bank assets are thus not sufficient to meet these liquidity demands, in turn justifying even patient depositors to get their money while they can: a bank run ensues. One policy conclusion then is for a central bank to follow the classic Bagehot principle of committing to inject liquidity to illiquid but otherwise solvent bank, in order to stop bank runs.
The financial crisis of 2007 and 2008 is reminiscent of a bank run, but not quite, see Brunnermeier (2008). First, this was (with few exceptions) not a run of depositors on their local house bank, but a run of banks and money funds on some core financial institutions. Second, the health of some core financial institutions (I shall call them “core banks” for the purpose of this paper) was called into question not because of their commitment to costly- to-call long-term loans, but rather because of the questionable value of a variety of “exotic” securities, most notably their guarantees for particular tranches of mortgage-backed security derivatives and credit default swaps. These are assets which could be marked to market at least in principle. So, when a bank cannot repay its depositors because the market value of their assets is below the value of its liabilities, the traditional prescription is to declare the bank to be bankrupt and not to provide it with additional liquidity.
The aim of this project is to identify for selected caravan parks in coastal NSW the nature and scale of the flood threat and to suggest strategies for management of the problem. A coarse but possibly conservative estimate suggests that perhaps two-thirds of the State’s 896 registered caravan parks are flood-liable, where flooding is defined as an overflowing of water onto land not usually submerged, and includesfloods rarer than the 1% Annual Exceedance Probability (AEP) event.
The view that contracting has its limits and that often reputation serves as a disciplining device is well understood and accepted in finance and economics (see Fama, 1980; Crocker and Reynolds, 1993; and Banerjee and Duflo, 2000). Yet, there is relatively little empirical evidence on whether parties which behave opportunistically in a repeated game setting with incomplete contracts (where reputation matters the most) suffer negative reputational consequences, and how big the negative effects are. There are several studies that attempt to measure the reputational loss from changes in product or service quality.
