In shoring up the banking system, the Fed and the Treasury likely enabled the economy to skirt a depression-sized disaster. However, since there are so many banks left standing - in a perfectly efficient situation more would have fallen by now (i.e., Citi) - there is probably still a long way to go on the road to recovery. Consolidation is likely inevitable. This is inefficient, and government intervention is using resources to push aside a natural market response: the consolidation of the banking industry.
Update: This chart has been slightly modified since its original version. For details, send me an email.
The chart illustrates the number of FDIC-insured commercial bank failures and the magnitude of those failures, as measured by the population. In the Great Depression, the number of commercial bank failures peaked at
In 2008 and 2009, the banking system has averted mass closure with the various government intervention efforts, where only 46 banks total have failed - minuscule compared to the previous two crises. Massive government interventions are pushing back banking reform; and in its effort to preserve the financial system, the consolidation of the banking system is inhibited by allowing weak banks to survive.
The market response requires consolidation - wonder when that is going to happen.
P.S. A list of the bank failures in 2008 and 2009 by name. This information is on the FDIC's website: