Expected returns are higher but management needs to be on its game – which is an oft-quoted argument for having some debt in a corporation. In the case of banks, it meant that the business of banking became even more focused on monitoring, information gathering and risk management.
Of course the depositors had some protection in that the capital of the proprietors was at risk before deposits. But banks also undertook maturity transformation. They offered depositors liquidity, but held only a fraction of their own assets in liquid form – enough for normal day-today operations.