Neil Quigley

Stability in the Absence of Deposit Insurance: The Canadian Banking System, 1890-1966

The Canadian banking system experienced a prolonged period of stability prior to the introduction of deposit insurance in 1967. Documenting the reasons for this stability provides important evidence in the debate over the impact of mandatory flat-rate deposit insurance. In this paper we use new archival data to refute recent claims that this stability resulted from an implicit deposit insurance scheme managed by Canadas largest banks and guaranteed by the federal government. We argue that the Canadian banking system was stable for two reasons. First, the absence of deposit insurance provided incentives for both prudence on the part of management, and monitoring by depositors and regulators. Second, the absence of unit banking and other regulatory barriers to competition facilitated efficient mergers which produced a relatively small number of well-managed banks. Copyright 1995 by Ohio State University Press.

Shareholder Liability Regimes, Principal-Agent Relationships and Banking Industry Performance

We develop an interpretation of the economics of alternative shareholder liability regimes that challenges the view that limited liability always represents the most efficient form of corporate organization. Unlimited liability will prevail when creditors are willing to compensate shareholders for bearing all of the costs of monitoring management and the risk associated with the activities of the firm. When the information about the financial position of the firm that is required to facilitate increased risk-bearing by creditors can be provided at costs lower than those associated with unlimited liability, firms will incorporate. Scottish banking in the nineteenth century provides unique data on the operation of a market in which firms with limited and unlimited liability competed, on the risk premium associated with unlimited liability shares, and on the innovations in information provision that facilitated the move from unlimited to multiple liability.

Discrimination in Bank Lending Policies: A Test Using Data from the Bank of Nova Scotia 1900-37

The authors use data on 460 loans made to individual firms by the Bank of Nova Scotia, together with information on the location, capital size, and activity type of each of these firms, to test for the existence of discriminatory lending policies. Their analysis indicates that there were marked differences in the amounts that firms of different types and in different locations actually borrowed. However, none of the results provides clear-cut support for the discrimination hypotheses in the secondary literature, including the suggestion that Canadian banks discriminated against manufacturing firms.

Agency Contracts with Long‐Term Customer Relationships

In certain industries, sales agent contracts include provisions for sales commissions and clawbacks of commissions if clients are not retained. We show that contracts with these features arise in environments having up‐front selling costs recouped from ongoing sales; heterogeneous customers; limited agent access to capital markets; and imperfect commitment to long‐term contracts. We test the model using information on insurance sales agent contracts from New Zealand prior to and after bank entry into insurance sales. The evidence indicates that banks cream‐skimmed customers. We predict that this should reduce the values of sales commissions and clawbacks. The data support this prediction.

The mortgage market in New Zealand, and the origins of the government advances to settlers act, 1894∗

Abstract New Zealands economic historians have popularised the view that in the early 1890s doubts about the safety of investments in Australasia prompted foreign mortgagees to withdraw funds from an already disorganised and inefficient mortgage market, creating a shortgage of credit. This paper argues that these assertions are incorrect. Investors withdrew funds, but only because there was a fall in the New Zealand demand for credit at the world interest rate, as well as because, in a period of falling interest rates, the asset tax levied on the value of mortgages discriminated against mortgagees in general, and foreign mortgagees in particular. There was no general shortage of funds in New Zealand in the 1890s, but Government policies discouraged the flow of local and foreign savings into the mortgage market.