Assessing TARP

Assessing TARP We study the government equity infusions into banks under the Capital Purchase Program (CPP) of the Troubled Asset Relief Program (TARP). Strong banks opted out of CPP, and equity infusions were provided to banks that posed systemic risk and faced high financial distress costs but had strong asset quality. Concerns over executive compensation led banks to reject CPP infusions and exit the program. CPP infusions did not have meaningful certification effects, but the subsequent stress tests conducted for the major banks had significant certification effects. CPP equity infusions increased investor expectations regarding future regulatory interventions in the banking sector. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Review of Financial Studies Oxford University Press

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Publisher
Oxford University Press
Copyright
© The Author 2011. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oup.com.
Subject
Articles
ISSN
0893-9454
eISSN
1465-7368
D.O.I.
10.1093/rfs/hhr121
Publisher site
See Article on Publisher Site

Abstract

We study the government equity infusions into banks under the Capital Purchase Program (CPP) of the Troubled Asset Relief Program (TARP). Strong banks opted out of CPP, and equity infusions were provided to banks that posed systemic risk and faced high financial distress costs but had strong asset quality. Concerns over executive compensation led banks to reject CPP infusions and exit the program. CPP infusions did not have meaningful certification effects, but the subsequent stress tests conducted for the major banks had significant certification effects. CPP equity infusions increased investor expectations regarding future regulatory interventions in the banking sector.

Journal

The Review of Financial StudiesOxford University Press

Published: Feb 25, 2012

Keywords: G18 G21 G28

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