Shareholder liability and bank failure

Felipe Aldunate Anfossi, Dirk Jenter, Arthur Korteweg, Peter Koudijs

Research output: Working paper


Does enhanced shareholder liability reduce bank failure? We compare the performance of around 4,200 state-regulated banks of similar size in neighboring U.S. states with different liability regimes during the Great Depression. The distress rate of limited liability banks was 29% higher than that of banks with enhanced liability. Results are robust to a diff-in-diff analysis incorporating nationally-regulated banks (which faced the same regulations everywhere) and are not driven by other differences in state regulations, Fed membership, local characteristics, or differential selection into state-regulated banks. Our results suggest that exposing shareholders to more downside risk can successfully reduce bank failure.
Original languageAmerican English
StateSubmitted - 2021


  • Bank Risk Taking
  • Limited Liability
  • Double Liability
  • Financial Crises
  • Great Depression


Dive into the research topics of 'Shareholder liability and bank failure'. Together they form a unique fingerprint.

Cite this