Double Liability of Bank Shareholders: A Look at the New Data

Abstract

In a recent article, we presented a historical analysis of the regime of double liability for bank shareholders that existed in the United States between the Civil War and the Great Depression. Under this regime of double liability, if a bank failed, a receiver would be appointed to determine the extent to which the bank's liabilities exceeded its assets. Shareholders would then be required to pay an amount up to and including the par value of their stock to satisfy the outstanding claims. Under current law, the regime of limited liability that existed for about seventy-five years has now been replaced by a more traditional corporate law paradigm in which shareholders' risks are capped at the amount of their initial capital investment. Moreover, the protections for depositors once provided by the regime of double liability have now been replaced by a federally sponsored program of deposit insurance. In a new and more complete study of national bank receiverships during the 1930-34 period, Professor Howell Jackson examines data for 1,595 national banks. Professor Jackson includes additional observations in his data set and extended the period of his inquiry concerning receiverships. While we stopped with receiverships that were completed by October 31, 1937, Professor Jackson uses receiverships that were completed as late as October 31, 1941. Thus, while Jackson's analysis covers the same 1930-34 period that we covered, his study includes receiverships that took far longer to complete than the receiverships we examined in our study.