For richer, for poorer. Banker’s liability and risk taking in New England, 1867-1880 (with Laura Salisbury)



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 were riskier: they had less liquidity and higher leverage, and they were more likely to lose deposits in the 1873-1879 Depression. This effect was most pronounced for bankers whose wives were relatively wealthy. We find no evidence that limiting liability increased capital investment at the county level.