We study whether banks are riskier if managers have less liability. We focus on New England between 1867 and 1880 and consider the introduction of marital property laws that limited liability for newly wedded bankers. We find that banks with managers who married after a law had higher leverage, delayed loss recognition, made more risky and fraudulent loans, and lost more capital and deposits in the Long Depression of 1873 to 1878. These effects were most pronounced for bankers with the largest reduction in liability. We find no evidence that limiting liability increased firm investment at the county level.TO WHAT EXTENT ARE AGENCY PROBLEMS in banking responsible for financial instability and how can these problems be addressed? These questions have been the subject of renewed interest since the 2008 financial crisis. Some commentators have argued that the asymmetric payoff faced by bank

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