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Revocation of Limited Liability for Banks and other “Critical” Businesses

Comment 3rd July 2010

Any bank, or other business, or an individual sector of the economy whose survival is considered necessary to the health of the nation's economy should not be permitted to benefit from laws and regulations granting limited liability.

Limited liability laws should be repealed, except for those organisations whose failure would not be serious enough to justify taxpayers' money being spent to repair or mitigate the damage.

Why does this matter?

Massive amounts of taxpayers' money have been transferred to failing banks and manufacturers to protect them from the consequences of their own poor decisions – this should not be necessary.

The concept of limited liability (i.e. the owners of a company shall not be personally liable for the debts of that company) obviously encourages investment in business, but can be disastrous when the owners of a bank are insulated from debts arising from failure.

The owners of a failed business should not be permitted to hide behind limited liability laws and should not be able to transfer the burden to taxpayers (who have little reward when the business is profitable). "Bailouts" should only be considered when a company's owners have paid their share of their company's debts.

This would encourage shareholders to insist that companies are run responsibly, which in the case of banks, should be enough to prevent them running the risk of a messy collapse.

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