Gascon, Fernando, "Reputation in Banking and Deposit Insurance: the Dynamics of Browsing and Lending under Regulation", 1996
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Debt contracts are cost-efficient rules designed to control opportunities behaviour on the part of managers, who are assumed to have better information than lenders. Although contracts are imperfect, in practice mangers voluntarily forbear from many kinds of opportunistic actions. They do so because the reputation for forbearance is valuable to them and their firms. A concern for reputation would help to align the interest of lenders and stockholders. Game theoretic approaches have been applied to explain formally how reputation is created and maintained in a multiperiod scenario under very restrictive initial assumptions. An S.D. approach is considered studying the dynamics and feedback effects of the borroer-lender relationship, modelling the behaviour of "Banco Herrero", a Spanish local bank when dealing with its customers and the regulator.