Pedestrians walk past a Wells Fargo & Co. bank branch in New York. (Eells/Bloomberg)

The bank bailouts of 2008 are back in the news. The Financial Stability Board, an international group of regulators chaired by the Bank of England’s Mark Carney, just released a new set of policy proposals aimed at shifting the burden of bailouts from taxpayers to bank investors. From a policy perspective, the idea is to reduce the moral hazard of banks that are too big to fail and know that governments have to bail them out. But the political drive behind the proposal also flows from the anger of voters, especially in the United States, with bailouts, which they perceive as easy on the banks and hard on the taxpayers.

This political perception is factually incorrect, as Raphael Reinke and I show in an article recently published in Politics & Society. Bank bailouts surely create moral hazard, and the bailouts of 2008 were no exception. But if governments are going to bail out big banks, there are better and worse ways to design the policy, in terms of allowing taxpayers to share in the subsidy that the government gives to banks. The United States actually got the big details of the bailout right – and for this reason, American taxpayers made money on the deal: about $8-10 billion, excluding the non-bank parts of the bailout.

The United Kingdom and Germany, by way of contrast, both enacted bailouts that were less effective in helping taxpayers share in the potential upside of the bailout. As a result, U.K. and German taxpayers were stuck with large book losses on their bailouts: $14 billion for the United Kingdom, and $55 billion for Germany, which is a lot of money, even for German Chancellor Angela Merkel.

The United States didn’t do better because its policymakers are smarter, but because American regulators have greater power vis-à-vis their banks. U.S., British and German policymakers all wanted the same thing – a collective bailout policy that would stabilize the financial system by recapitalizing systemically important banks with government money. During a crisis, all banks benefit from an injection of government capital into weak banks, which are the counterparties of strong banks. But government capital carries a stigma, because the government can become a pushy shareholder, making harsh demands about the compensation of senior executives, for example. So financially solvent banks would like the government to bail out the weak banks without themselves taking capital from the government. The strong banks can benefit from the stabilization of financial markets – aided by injections of central bank liquidity – without having to deal with the government as a pesky shareholder.

That’s the perspective of the banks. The government’s favored approach – which also benefits the taxpayer – is to avoid putting public money only into the financially weakest banks, both to avoid stigmatizing them and, more importantly, to give taxpayers a return on their investment by allowing them to share in the upside that strong banks enjoy when weak banks are bailed out. JP Morgan and Wells Fargo, which were relatively healthy banks during the crisis, did not need government money. But they and their share price would benefit from government bailout of weak banks. By forcing these healthy banks to accept government recapitalization, and by demanding warrants from those banks allowing the government to buy shares at the distressed September 2008 price, the American taxpayer got to share some of the financial benefit of the U.S. bank bailout plan – which only seems fair, given that they did pay for it.

Gordon Brown’s government in Britain also tried to craft a collective bailout. But the financially healthy bank HSBC defied attempts by the Brown government to include all banks in the bailout plan. Once HSBC made clear it was not going to take government money, the British bank Barclays also headed for the exits, preferring to take more costly capital from Abu Dhabi and Qatar rather than accept the stigma of a government bailout. In Germany, Deutsche Bank also refused to be part of a collective bailout, forcing the government to aid only the weakest banks, on which the taxpayer was unlikely to get a healthy return.

What allowed healthy banks such as HSBC and Deutsche Bank to defy their governments, while JP Morgan and Wells Fargo knuckled under to the U.S. government? The only plausible explanation for this outcome is that the U.S. banks depend more on their domestic markets. HSBC and Deutsche Bank are truly international banks: In the years leading up the crisis, they earned less than 30 percent of their revenue in their “home” markets. By contrast, JP Morgan earned more than 70 percent of its revenue, and Wells Fargo 100 percent, in the U.S. market. These banks were heavily dependent on the good will of American regulators, both in the crisis and in the long shadow of the future. And the shadow of the regulatory future in the lucrative U.S. market meant that regulators and senior government officials were able to bully U.S.  banks when the time came for designing the bailouts.

Many political scientists have observed that the state is structurally dependent on capital. It has been much less remarked in recent work that capital is sometimes dependent on the state. During the 2008 bailout, U.S. government officials were able to deploy this structural power against their own banks to push through a policy design that both saved the banks and made money for the taxpayers.

It is one of the great ironies of modern politics that the U.S. bailout has been so politically toxic. Barney Frank, chairman of the House Financial Services Committee in 2008, has quipped that the bailout “will go down in history as the most successful wildly unpopular thing the federal government has ever done.” All government bailouts create problems of moral hazard, but some bailouts are better than others. While no one should feel sorry for big U.S. banks, the case of the bailout should remind us that the visible traces of how finance influences politics – through lobbying and campaign contributions – are not the only sources of banking influence. That influence is sometimes a product of more structural features of the economy. And those structural features sometimes redound to the benefit of governments, even in the United States.

Pepper Culpepper is a professor of political science at the European University Institute in Fiesole, Italy.