NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Demise of Double Liability as an Optimal Contract for Large-Bank Stockholders

Berry K. Wilson, Edward J. Kane

NBER Working Paper No. 5848
Issued in December 1996
NBER Program(s):   CF

This paper tests the optimal-contracting hypothesis, drawing upon data from a natural experiment that ended during the Great Depression. The subjects of our experiment are bank stockholders. The experimental manipulation concerns the imposition of state or federal restrictions on the contracts they write with bank creditors. We contrast stockholders that were subject to the now-conventional privilege of limited liability with stockholders that faced an additional liability in liquidation tied to the par value of the bank's capital. Our tests show that optimal contracting theory can provide an explanation both for the long survival of extended-liability rules in banking and for why they were abandoned in the 1930s.

download in pdf format
   (1355 K)

email paper

This paper is available as PDF (1355 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w5848

Published: Edward K. Kane & Berry K. Wilson, 1997. "The demise of double liability as an optimal contract for large-bank stockholders," Proceedings, Federal Reserve Bank of Chicago, issue May, pages 374-401.

Users who downloaded this paper also downloaded these:
Aizenman and Yi w6123 Controlled Openness and Foreign Direct Investment
Kane and Wilson w6451 A Contracting-Theory Interpretation of the Origins of Federal Deposit Insurance
Altonji and Pierret w6279 Employer Learning and Statistical Discrimination
White w15573 Lessons from the Great American Real Estate Boom and Bust of the 1920s
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us