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Bankers only listen to laws.

Publication: Regulation
Publication Date: 22-MAR-09 		Format: Online
Delivery: Immediate Online Access
Full Article Title: Bankers only listen to laws.(BRIEFLY NOTED)

Article Excerpt
Some government intervention in the marketplace is necessary, but it will only work well if policymakers get the laws right. For confirmation of this, we need only look at the history of banking, where laws that granted limited liability to bank ownership underwrote risk-taking that escaped all public control.

The limited liability corporation is an extremely valuable social invention. It appeared in Britain and the United States in the 1860s, and was adopted by the rest of Europe in the following decade. By saving investors from having all their wealth at stake if a business were to fail, this type of shareholding made it possible both for higher risks to be taken in investing and for the risks to be spread over portfolios.

Initially, banks did not benefit from this legal innovation. In 1782, the Irish Parliament passed the first act permitting general limited liability partnerships. This contributed to a remarkable period of productive investment and prosperity in the country. Significantly, however, the privilege was explicitly denied to investment in businesses...

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