POLITICIANS AND BANKERS - THE POLITICAL ORIGINS OF 2 LOCAL BANKING CRISES

This paper analyzes the role that political corruption played in banki ng crises in two states, Rhode Island and Maryland, where, in the 1980 s and 1990s, private deposit insurance funds collapsed and state gover nments were forced to intervene to bail out member institutions. The a rgument is made that the collapse of these funds was not the result of abstract economic forces but rather was the outcome of structural wea knesses in the two banking systems, weaknesses that ultimately derived from close relationships and overlapping interests among bankers, pol iticians and regulators. These structural weaknesses are examined and the implications of these two case studies for private deposit insuran ce and self-regulation among financial institutions are considered.