The case for tiered liability: evidence from the City of Glasgow Bank failure

C. A. E. Goodhart and Natacha Postel-Vinay

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: The City of Glasgow Bank failure in 1878, which led to large numbers of unlimited liability 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, including senior executives. In this article, we focus on the question of why the opportunity was not taken to assign greater liability to ‘insiders’, i.e. those with direct access to information and power over decisions, than to ‘outsiders’ lacking both. We analyse parliamentary and public debates ahead of the passage of the bill, and find that such issues were raised and discussed at the time, but arguments in support of equal shareholder treatment won out. By showing the weak foundations of those arguments, we suggest that an alternative, tiered-liability path could (and should) have been taken, with potentially significant implications for contemporary prudential policy.

Keywords: corporate governance; limited liability; tiered liability; bank risk-taking; financial regulation; financial crises; executive incentives (search for similar items in EconPapers)
JEL-codes: G21 G28 G30 G32 G39 K22 K29 L20 N23 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2026-07-20
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Published in Financial History Review, 20, July, 2026. ISSN: 0968-5650

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