Double Liability of Bank Shareholders: History and Implications

For three quarters of a century-between, roughly, the Civil War and the Great Depression-shareholders in American banks were responsible not only for their investments, but also for a portion of the bank's debts after insolvency. If a bank failed, the receiver would determine the extent of the insolvency and then assess shareholders for an amount up to and including the par value of their stock. This system of "double liability" was actively and vigorously enforced throughout the period of its existence, generating an enormous volume of litigation, including nearly fifty decisions by the United States Supreme Court and hundreds more in the state courts and lower federal courts. The double liability of bank shareholders raises fundamental questions for corporate law and banking regulation.