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The City of Glasgow Bank failure and the case for liability reform

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  • Goodhart, C. A. E.
  • Postel-Vinay, Natacha

Abstract

The City of Glasgow Bank failure in 1878, which led to large numbers of shareholders becoming insolvent, generated great public concern about their plight, and led directly to the 1879 Companies Act, which paved the way for the adoption of limited liability for all shareholders. In this paper, we focus on the question of why the opportunity was not taken to distinguish between the appropriate liability for ‘insiders,’ i.e. those with direct access to information and power over decisions, as contrasted with ‘outsiders.’ We record that such issues were raised and discussed at the time, and we report why proposals for any such graded liability were turned down. We argue that the reasons for rejecting graded liability for insiders were overstated, both then and subsequently. While we believe that the case for such graded liability needs reconsideration, it does remain a complex matter, as discussed in Section 4.

Suggested Citation

  • Goodhart, C. A. E. & Postel-Vinay, Natacha, 2024. "The City of Glasgow Bank failure and the case for liability reform," Economic History Working Papers 121956, London School of Economics and Political Science, Department of Economic History.
    • Handle: RePEc:ehl:wpaper:121956
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    References listed on IDEAS

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    More about this item

    Keywords

    corporate governance; limited liability; bank risk-taking; financial regulation; financial crises; senior management regime; banks; banking;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other
    • N23 - Economic History - - Financial Markets and Institutions - - - Europe: Pre-1913
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • K29 - Law and Economics - - Regulation and Business Law - - - Other
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General

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