Did bank borrowers benefit from the TARP program: the effects of TARP on loan contract terms

Allen Berger (), Tanakorn Makaew and Raluca Roman ()

No RWP 15-11, Research Working Paper from Federal Reserve Bank of Kansas City

Abstract: We study the effects of the Troubled Asset Relief Program (TARP) on loan contract terms to businesses borrowing from recipient banks. Using a difference-in-difference analysis, we find that TARP led to more favorable terms to these borrowers in all five contract terms studied ? loan amounts, spreads, maturities, collateral, and covenants. This suggests recipient banks' borrowers benefited from TARP. These findings are statistically and economically significant, and are robust to dealing with potential endogeneity issues and other checks. {{p}} The contract term improvements are concentrated primarily among safer borrowers, consistent with a decrease in the exploitation of moral hazard incentives. Benefits extended to both relationship and non-relationship borrowers, and to term loan, revolver, and other loan borrowers. Results contribute to the TARP benefits-costs debate, by adding to the list of benefits of the program.

Keywords: Bailout; Bank loans; Financial crisis; TARP (search for similar items in EconPapers)
JEL-codes: G01 G21 G28 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2015-09-01
New Economics Papers: this item is included in nep-ban
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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