Trust But Verify: Fraud in Victorian Banking and Its Diminishment

29 Pages Posted: 12 Jan 2012

See all articles by Geoffrey Fain Williams

Geoffrey Fain Williams

Transylvania University; Transylvania University

Date Written: January 11, 2012

Abstract

The Victorian banking system was plagued by regular bank failures due to fraud or mismanagement exacerbated by grossly misleading information. In the opinion of informed contemporaries, many banks that did not fail were weakened by fraud. I look at data on the frequency and magnitude of fraud, and show that while it was a minor part of a healthy financial system it was substantially more than fraud in the UK or US in the 20th century; excepting the period after 1878 (the last 23 years of Queen Victoria's 63 year reign), there was the equivalent of Madoff-scale scandal or greater every decade. I develop a simple model that explains why rational agents might, under limited monitoring, engage in fraud to cover short-term losses in a bank.

Keywords: crime, banks, financial crises

JEL Classification: G21, G01, K42

Suggested Citation

Williams, Geoffrey Fain and Williams, Geoffrey Fain, Trust But Verify: Fraud in Victorian Banking and Its Diminishment (January 11, 2012). Available at SSRN: https://ssrn.com/abstract=1983633 or http://dx.doi.org/10.2139/ssrn.1983633

Geoffrey Fain Williams (Contact Author)

Transylvania University ( email )

300 N Broadway
Lexington, KY 40502
United States

Transylvania University ( email )

300 N Broadway
Lexington, KY 40502
United States

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