Politicians and bankers: The political origins of two local banking crises

This paper analyzes the role that political corruption played in banking crises in two states, Rhode Island and Maryland, where, in the 1980s and 1990s, private deposit insurance funds collapsed and state governments were forced to intervene to bail out member institutions. The argument is made that the collapse of these funds was not the result of abstract economic forces but rather was the outcome of structural weaknesses in the two banking systems, weaknesses that ultimately derived from close relationships and overlapping interests among bankers, politicians and regulators. These structural weaknesses are examined and the implications of these two case studies for private deposit insurance and self-regulation among financial institutions are considered. *** DIRECT SUPPORT *** A8806012 00002