Did TARP reduce or increase systemic risk? The effects of government aid on financial system stability

Allen N. Berger, Raluca Roman () and John Sedunov

Journal of Financial Intermediation, 2020, vol. 43, issue C

Abstract: Theory suggests that government aid to banks may either reduce or increase systemic risk. We are the first to address this issue empirically, analyzing the Troubled Assets Relief Program (TARP). Analysis suggests that TARP significantly reduced contributions to systemic risk, particularly for larger and safer banks, and those in better local economies. This occurred primarily through a capital cushion channel that reduced market leverage by increasing the value of common equity. Results are robust to endogeneity and selection bias checks. Findings yield policy conclusions about whether to aid banks, the best targets for future assistance, and short-term versus long-term effects.

Keywords: Government assistance; TARP; Banks; Systemic risk; Financial crises (search for similar items in EconPapers)
JEL-codes: G18 G21 G28 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (35)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1042957319300129
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:jfinin:v:43:y:2020:i:c:s1042957319300129

DOI: 10.1016/j.jfi.2019.01.002

Access Statistics for this article

Journal of Financial Intermediation is currently edited by Elu von Thadden

More articles in Journal of Financial Intermediation from Elsevier
Bibliographic data for series maintained by Catherine Liu ().