The bank and S&L debacle of the 1980s focused attention on the possibility that government regulation and deposit insurance can make depository institutions more prone to failure. Branch banking restrictions, for example, limit geographic diversification, leaving banks more vulnerable to localized economic distress. The author shows that state and federal banking policies contributed to interstate differences in bank failure rates during the Great Depression, providing new insight into the effects of government policies and market structure on the performance of the banking system.