Abstract: The article explores the determinants of banks’ capital ratio in the Pre-Regulation Era where capital structure decisions were not influenced by deposit-insurance schemes, capital requirements, or high tax shields. The analysis builds on partial-adjustment capital-structure models estimated on the basis of panel data for all Danish commercial banks 1847–1919. The results suggest that banks with low levels of liquidity had a higher capital ratio in periods with financial instability. This enabled them to suffer larger losses and thereby reduce the risk of facing costs of financial distress. The article is the first bank-level study on capital structure in the Pre-Regulation Era.