Geographies of Financial Stability: Bank Failures and Rescues in the United States During the Great Recession

Abstract

The 2008 financial crisis was the second instance since the Great Depression that many hundreds of financial institutions failed across the United States. The rescue staged by the federal government, however, was unprecedented in scale, involving an initial Congressional authorization of $700 billion disbursed to financial companies through Treasury, as opposed to the normal resolution process for distressed institutions by the Federal Deposit Insurance Corporation (FDIC). There is, as yet, no geography of these bank failures and rescues even though locational data for both types are publicly available. This paper is a comparative analysis of the spatial distribution of these two policy programs. We find that the programs observed separate and largely independent spatial patterns at the state-level, and these were associated with changes in market structure: consolidation among insured banks, and growth among bank holding companies (BHCs). Our analysis uses organizational models of decision-making in government to address the causes of the transformations of financial and regulatory spaces.