16  BIS central bankers’ speeches  BIS central bankers’ speeches  17  18  BIS central bankers’ speeches  BIS central bankers’ speeches  19  20  BIS central bankers’ speeches  BIS central bankers’ speeches  21  22  BIS central bankers’ speeches  BIS central bankers’ speeches  23  24  BIS central bankers’ speeches  BIS central bankers’ speeches  25  References Acheson, G, Hickson, C and Turner, J (2010), “Does limited liability matter?” Evidence from nineteenth –century British banking, review of Law and Economics, Vol 6(2), pages 247–73. Admati, A and Hellwig, M (2014), “The Bankers” New Clothes: What’s Wrong with banking and What to Do about it’, Princeton University Press. Alessandri, P and Haldane A G (2009), “Banking on the State”, speech delivered at the Federal Reserve Bank of Chicago, available at: http://www.bankofengland.co.uk/archive/Documents/historicpubs/speeches/2009/speech409. pdf. Allen, F. and Gale, D (2000), “Comparing financial systems”, MIT Press. Asker, J, Collard-Wexler, A and De Loecker J (2014), “Dynamic Inputs and Resource (Mis)Allocation”, Journal of Political Economy, vol 122. Bagehot, W (1862), “Limited Liability in Banking” – I’ and “Limited Liability in Banking” – II’ in St John-Stevas, N (1978) “The Collected Works of Walter Bagehot Vol. 9”, The Economist, London. Bailey, A (2014), speech delivered at the City Banquet London, available at: http://www.bankofengland.co.uk/publications/Documents/speeches/2014/speech763.pdf. Becht, M, Bolton, P and Roell A (2011), “Why Bank Governance is Difference” Oxford Review of Economic Policy, vol 27.
10 By 1889, all bar two British banks had limited their shareholders’ liability and nearly two-thirds had opted for reserve liability. 11 But even reserve liability was felt to be precarious, stoking rather than abating banking crises. As Bank of England Deputy Governor Catterns stated in a secret memo of 1937 “today a bank could not in a crisis make a call on shareholders without aggravating the crisis”. 12 In the 1950s, the major British banks eliminated their remaining uncalled capital (Turner (2009)). Entrenching shareholder rights Yet, even once firmly rooted, limited liability quickly gave rise to a new set of questions. If managers were no longer personally liable for failure, what incentivised them to protect investors’ money? And what provided the incentives for shareholders, increasingly dispersed and with their claims protected from downside risk, to remain engaged? In the 19th century, maximising shareholder return was not the centrepiece of companies’ objectives or directors’ duties. To be sure, paying a regular dividend was important and shareholders could – and often did – challenge directors regarding its size. But wider considerations played as important a role. Introducing his reflections in 1885 on “the rights and duties of shareholders”, George Rae observed that “when a man becomes a shareholder in a bank he becomes to all intents and  7  Rae (1885). 8  Acheson, Hickson & Turner (2010). 9  Button et al (2015). 10  Esty (1998). 11  Acheson et al (2010). 12  Turner (2014).