ABSTRACT
The financial system’s main purpose is to facilitate the flow of funds from savers to borrowers. Financial institutions accomplish this by offering savers the savings vehicles they want—deposit accounts, individual retirement accounts, etc.—and borrowers the instruments they need- commercial loans, mortgage loans, etc. Of the various kinds of geographic mismatch, that between capital-surplus and capital-deficit regions has been of greatest consequence. Historically, the biggest mismatch has been between the older, more settled Northeast/North Central corridor, with its surplus of capital and its low rates of new home construction, and the West and Southwest, with their shortages of capital and high rates of new home construction. Geographic mismatch is not the only thing that separates savers from borrowers; there is also institutional mismatch. A large portion of all household savings flows through such financial intermediaries as life insurance companies and pension funds.
