Were Banks Special? Contrasting Viewpoints in Mid-Nineteenth Century Britain
16 Pages Posted: 21 Sep 2018
Date Written: September 14, 2018
In 1853 a Royal Commission was set up to investigate whether laws related to limited liability in Britain needed to be modified. As part of its evidence gathering the commission issued a questionnaire that included a number of questions on whether banks should be subject to the same liability laws as other types of commercial enterprises. This paper analyses the responses to the questions about banks to understand whether banks were seen as a special case. Support for modifying the law to make limited liability more easily available to banks was lower than for enterprises in general. Banks were seen as a special case because of the risk of bank runs and because their creditors were not able to assess accurately the riskiness of banks. But the special nature of banks caused others to favour limited liability because it made banks’ capital levels more transparent. These arguments echo wider debates during the nineteenth century and are similar to contemporary theories for why banks are regulated.
Keywords: Banking history, liability laws
JEL Classification: N23, G21, G28
Suggested Citation: Suggested Citation