 Free to Choose: Bank Capital in Britain, 1878-1939Gareth Campbell, Lyndon Moore and John Turner No 21858, CEPR Discussion Papers from Centre for Economic Policy Research Abstract: Government regulation of the banking sector is pervasive, making it difficult to empirically analyze when banks would voluntarily choose to issue equity if there were no minimum requirements on capital adequacy. A unique historical setting occurred in the late nineteenth-century United Kingdom when joint-stock banks were free to choose their capital structures. We show that during this era, banks were willing to issue equity as part of restructuring processes, but were reluctant to do so on a regular basis to offset increases in liabilities. We find that large issues of uncalled capital were made as a replacement for unlimited liability, and this uncalled capital continued to restrain risk taking as shown by an analysis of bank loan books. Banks were also willing to issue stock to finance mergers and acquisitions, but this was generally just used to absorb the equity of target banks so did not increase aggregate paid-up capital. Equity issuance did not keep pace with deposit growth, leading to the erosion of capital adequacy over the long run. Keywords: Banking (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:21858 Ordering information: This working paper can be ordered from Access Statistics for this paper More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK. |
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