AbstractWe calculate the costs and benefits of the largest ever US government intervention in the financial sector announced during the 2008 Columbus-day weekend. We estimate that this intervention increased the value of banks' financial claims by $130 billion (bn) at a taxpayers' cost of $21-$44 billion with a net benefit between $86 and $109Â bn. By looking at the limited cross section, we infer that this net benefit arises from a reduction in the probability of bankruptcy, which we estimate would destroy 22% of the enterprise value. The big winners of the plan were the bondholders of the three former investment banks and Citigroup, while the losers were JP Morgan shareholders and the US taxpayers.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of Financial Economics.
Volume (Year): 97 (2010)
Issue (Month): 3 (September)
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/505576
Banking crisis Bailout TARP;
Other versions of this item:
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gregor Andrade & Steven N. Kaplan, 1998.
"How Costly is Financial (Not Economic) Distress? Evidence from Highly Leveraged Transactions that Became Distressed,"
Journal of Finance,
American Finance Association, vol. 53(5), pages 1443-1493, October.
- Gregor Andrade & Steven N. Kaplan, 1997. "How Costly is Financial (not Economic) Distress? Evidence from Highly Leveraged Transactions that Became Distressed," NBER Working Papers 6145, National Bureau of Economic Research, Inc.
- Merton, Robert C., 1973.
"On the pricing of corporate debt: the risk structure of interest rates,"
684-73., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Merton, Robert C, 1974. "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 29(2), pages 449-70, May.
- Thomas Philippon & Philipp Schnabl, 2009.
NBER Working Papers
14929, National Bureau of Economic Research, Inc.
- Ballard, Charles L & Shoven, John B & Whalley, John, 1985. "General Equilibrium Computations of the Marginal Welfare Costs of Taxes in the United States," American Economic Review, American Economic Association, vol. 75(1), pages 128-38, March.
- Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
- Phillip Swagel, 2009.
"The Financial Crisis: An Inside View,"
Brookings Papers on Economic Activity,
Economic Studies Program, The Brookings Institution, vol. 40(1 (Spring), pages 1-78.
- Hui Chen, 2010.
"Macroeconomic Conditions and the Puzzles of Credit Spreads and Capital Structure,"
Journal of Finance,
American Finance Association, vol. 65(6), pages 2171-2212, December.
- Hui Chen, 2010. "Macroeconomic Conditions and the Puzzles of Credit Spreads and Capital Structure," NBER Working Papers 16151, National Bureau of Economic Research, Inc.
- Duchin, Ran & Sosyura, Denis, 2012. "The politics of government investment," Journal of Financial Economics, Elsevier, vol. 106(1), pages 24-48.
- Xavier Vives, 2011.
"Strategic Complementarity, Fragility, and Regulation,"
CESifo Working Paper Series
3507, CESifo Group Munich.
- Vives, Xavier, 2011. "Strategic complementarity, fragility, and regulation," IESE Research Papers D/928, IESE Business School.
- Xavier Vives, 2012. "Strategic Complementarity, Fragility, and Regulation," 2012 Meeting Papers 789, Society for Economic Dynamics.
- Vives, Xavier, 2011. "Strategic Complementarity, Fragility, and Regulation," CEPR Discussion Papers 8444, C.E.P.R. Discussion Papers.
- Blakespoor, Elizabeth & Linsmeier, Thomas J. & Petroni, Kathy & Shakespeare, Catherine, 2012. "Fair Value Accounting for Financial Instruments: Does It Improve the Association between Bank Leverage and Credit Risk?," Research Papers 2107, Stanford University, Graduate School of Business.
- Priyank Gandhi & Hanno Lustig, 2010. "Size Anomalies in U.S. Bank Stock Returns: A Fiscal Explanation," NBER Working Papers 16553, National Bureau of Economic Research, Inc.
- Erkens, David H. & Hung, Mingyi & Matos, Pedro, 2012. "Corporate governance in the 2007–2008 financial crisis: Evidence from financial institutions worldwide," Journal of Corporate Finance, Elsevier, vol. 18(2), pages 389-411.
- Cornett, Marcia Millon & Li, Lei & Tehranian, Hassan, 2013. "The performance of banks around the receipt and repayment of TARP funds: Over-achievers versus under-achievers," Journal of Banking & Finance, Elsevier, vol. 37(3), pages 730-746.
- Sweder van Wijnbergen & Leontine Treur, 2011. "State Aid and Bank Intervention: The ING Illiquid Assets Back-up Facility (IABF)," Tinbergen Institute Discussion Papers 11-146/2/DSF26, Tinbergen Institute, revised 27 Oct 2011.
- Elyas Elyasiani & Loretta J. Mester & Michael S. Pagano, 2011.
"Large capital infusions, investor reactions, and the return and risk performance of financial institutions over the business cycle and recent finanical crisis,"
11-46, Federal Reserve Bank of Philadelphia.
- Elyas Elyasiani & Loretta J. Mester & Michael S. Pagano, 2013. "Large capital infusions, investor reactions, and the return and risk performance of financial institutions over the business cycle and recent finanical crisis," Working Papers 13-23, Federal Reserve Bank of Philadelphia.
- Kim, Dong H. & Stock, Duane, 2012. "Impact of the TARP financing choice on existing preferred stock," Journal of Corporate Finance, Elsevier, vol. 18(5), pages 1121-1142.
- Wilson, Linus & Wu, Yan Wendy, 2012. "Escaping TARP," Journal of Financial Stability, Elsevier, vol. 8(1), pages 32-42.
- Hein, Scott E. & Koch, Timothy W. & Nounamo, Chrislain, 2012. "Moving FDIC insurance to an asset-based assessment system: Evidence from the special assessment of 2009," Journal of Economics and Business, Elsevier, vol. 64(1), pages 24-36.
- Vallascas, Francesco & Keasey, Kevin, 2012. "Bank resilience to systemic shocks and the stability of banking systems: Small is beautiful," Journal of International Money and Finance, Elsevier, vol. 31(6), pages 1745-1776.
- Chang, Chuen-Ping, 2012. "Default probability of a captive credit bank with government capital injections: A capped barrier option approach," Economic Modelling, Elsevier, vol. 29(6), pages 2444-2450.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wendy Shamier).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.