Working Paper: NBER ID: w24998
Authors: Peter Koudijs; Laura Salisbury; Gurpal Sran
Abstract: We study whether banks are riskier if managers have less liability. We focus on New England between 1867 and 1880 and consider the introduction of marital property laws that limited liability for newly wedded bankers. We find that banks with managers who married after a legal change had more leverage, were more likely to "evergreen" loans and violate lending rules, and lost more capital and deposits in the Long Depression of 1873-1878. This effect was most pronounced for bankers with wives from relatively wealthy families. We find no evidence that limiting liability increased firm investment at the county level.
Keywords: bank risk-taking; liability; marital property laws; historical banking
JEL Codes: G01; G21; G28; N21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Risk-taking behavior of bank managers (G21) | Higher leverage (G19) |
| Risk-taking behavior of bank managers (G21) | Violations of lending rules (G21) |
| Risk-taking behavior of bank managers (G21) | Greater losses in capital and deposits (F65) |
| Married Women's Property Acts (MWPAs) (J12) | Higher likelihood of evergreening loans (G51) |
| Married Women's Property Acts (MWPAs) (J12) | Risk-taking behavior of bank managers (more pronounced for managers married to wealthier women) (G40) |
| Married Women's Property Acts (MWPAs) (J12) | Risk-taking behavior of bank managers (G21) |