The longer-term impact of TARP on banks’ default risk

Jieqiong Gao and Chinmoy Ghosh

The Quarterly Review of Economics and Finance, 2024, vol. 95, issue C, 346-357

Abstract: We analyze the long-term effect of 2008 Troubled Asset Relief Program (TARP) funding through the default risk angle to further our understanding of the TARP program’s benefits and costs. Our sample includes the banks that received funding under the TARP program from October 2008 to December 2009 with the corresponding data on transaction dates, investment amounts and repayment schedules collected from the U.S. Department of the Treasury website, and for which the required financial date is available for the period from 2000 to 2017. We find that both the treatment group (banks receiving TARP funds) and the control group (banks not receiving TARP funds) of banks increased their default risk in the post-TARP period spanning almost a decade after the capital injection. Using a difference-in-difference approach, we find that the long-lasting impact of TARP funding is higher in TARP banks compared to banks that did not receive such funding. Our findings indicate that the TARP funds did not improve but worsened recipients’ default risk, supporting the moral hazard concerns of government guarantee programs.

Keywords: Commercial banks; Banking regulation; Government policy; Default probability (search for similar items in EconPapers)
JEL-codes: E02 G21 G28 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1062976923001126
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:95:y:2024:i:c:p:346-357

DOI: 10.1016/j.qref.2023.10.001

Access Statistics for this article

The Quarterly Review of Economics and Finance is currently edited by R. J. Arnould and J. E. Finnerty

More articles in The Quarterly Review of Economics and Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().