We investigate the effects of the abolition of double liability requirement imposed on bank shareholders in Canada on … bank risk-taking and lending behavior. Under the double liability rule, the shareholders of a bank were liable up to twice … the amount of their subscribed shares in the case of bankruptcy. With the establishment of the Bank of Canada in 1934, the …

, we study the implications of these two rules on bank capital adjustments. We show that the mix of the two-capital rules … can be viewed as a “hockey stick” shape single leverage ratio with limits equal to the value of a call option on the bank …

are regulated, including the need to obtain a charter to operate and explicit and implicit federal guarantees of bank … liabilities to reduce the probability of bank runs. These aspects of banking affect a bankś choice of risk vs. expected return …, which, in turn, affects bank performance. Banks have an incentive to reduce risk to protect the valuable charter from …