Escaping TARP

Linus Wilson and Yan Wendy Wu

Journal of Financial Stability, 2012, vol. 8, issue 1, 32-42

Abstract: This paper studies the factors that were associated with a bank's early exit from the Troubled Asset Relief Program (TARP) in 2009. Executive pay restrictions were often a rationale cited for early TARP exit, and high levels of CEO pay in 2008 were associated with banks being significantly more likely to escape TARP. In addition, we find that larger publicly traded banks with better accounting performance, the stronger capital ratios, and fewer troubled loans and other assets exited early. Banks that raised private capital in 2009 were significantly more likely to return the taxpayers’ money early. The original eight TARP recipients, which received $165 billion of the $245 billion passed out, had weak tangible common equity ratios at the end of 2008, relative to other TARP recipients. Those eight banks raised common equity capital in 2009, and all at least partially exited the government's embrace.

Keywords: Bailout; Banks; Banking; Basel capital standards; Callable bonds; Capital ratios; Capital Purchase Program (CPP); Dividends; Emergency Economic Stabilization Act (EESA); Hybrid securities; Investment; Preferred stock; Targeted Investment Program (TIP); Troubled Asset Relief Program (TARP); U.S. Treasury; Warrants (search for similar items in EconPapers)
JEL-codes: G01 G13 G21 G28 G32 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:8:y:2012:i:1:p:32-42

DOI: 10.1016/j.jfs.2011.02.002

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