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The effect of TARP on the propagation of real estate shocks: Evidence from geographically diversified banks

Karen Y. Jang

Journal of Banking & Finance, 2017, vol. 83, issue C, 173-192

Abstract: This study examines the effect of TARP on the propagation of real estate shocks via geographically diversified banks in the U.S. I find that TARP money provided for banks exposed to distressed areas (i.e., “affected” banks) was positively associated with small business loan originations in “non-distressed” areas (i.e., counties with smaller real estate shocks), mitigating the shock transmission. In addition, the bailout funds facilitated “affected” banks’ faster return to their pre-crisis level of franchise value. Overall, the marginal benefit of TARP funds seems to have been greater for “affected” TARP banks. I conclude that this policy helped “affected” banks cleanse/strengthen their balance sheets and recapitalize, which paved the way for increased lending.

Keywords: Shock transmission; TARP; Commercial banks; Small business loans (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:eee:jbfina:v:83:y:2017:i:c:p:173-192