This fault-line lies at the heart of the imbalance between privatised returns and socialised risks. Only in banking do control rights and incentive wrongs combine so uncomfortably. That calls for fundamental reform. Post-crisis that has been recognised, as regulatory reform has come thick and fast. These reforms are unquestionably a step in the right direction. But if they are not to reappear, deep-rooted incentive problems in banking need to be tackled at  1  US Treasury (2011). BIS central bankers’ speeches  1  source. I wish to argue there is unfinished business before these incentives are properly aligned with the public good. Limited liability In the first half of the 19th century, the business and governance of banking was relatively simple. By the mid-19th century, the United Kingdom had around 500 banks and 700 building societies. Most of the former operated as unlimited liability partnerships, the latter as mutually-owned co-operatives.2 Financial sector assets represented less than 50% of annual GDP and the largest banks had assets of less than 5% of GDP. Bank balance sheets were heavily cushioned. Equity capital often accounted for as much as a half of all liabilities, while cash and liquid securities frequently accounted for as much as 30% of banks’ assets. Banking was a low-concentration, low-leverage, high-liquidity business. A broadly-similar pattern was evident across banking systems in the United States and in Europe. This governance and balance sheet structure was mutually compatible.

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