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Implications of a TAF program stigma for lenders: the case of publicly traded banks versus privately held banks

Ken B. Cyree (), Mark D. Griffiths () and Drew B. Winters ()
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Ken B. Cyree: University of Mississippi
Mark D. Griffiths: Miami University
Drew B. Winters: Texas Tech University

Review of Quantitative Finance and Accounting, 2017, vol. 49, issue 2, 545-567

Abstract: Abstract Term auction facility (TAF) was created during the financial crisis as a substitute for the Federal Reserve’s discount window, the lender of last resort. We hypothesize if TAF borrowing is viewed as a bailout then publicly traded banks would borrow relatively fewer TAF funds to avoid a bailout stigma. We find publicly traded banks did borrow less (as a percent of total assets) in the TAF program than privately held banks. Further, too-big-to-fail banks and investment banks borrowed relatively less than other publicly traded banks indicating greater levels of public scrutiny reduces borrowing under emergency government liquidity programs. We also find that publicly traded banks pledged lower quality and less liquid collateral than private banks when borrowing under the program. Our results suggest TAF provided more benefit to traditional privately held banks with strong balance sheets that were able to borrow relatively greater amounts in anticipation of either future liquidity needs as suggested by Ivashina and Scharfstein (J Financ Econ 97:319–338, 2010) or increased lending as found by Berger et al. (The Federal Reserve’s discount window and TAF programs: “pushing on a string?” Working paper, University of South Carolina, 2014).

Keywords: Financial crisis; Federal Reserve liquidity programs; Too-big-to-fail; Bailout; Stigma (search for similar items in EconPapers)
JEL-codes: G18 G21 G28 (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:kap:rqfnac:v:49:y:2017:i:2:d:10.1007_s11156-016-0600-2