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Escaping TARP

  • Wilson, Linus
  • Wu, Yan Wendy
Registered author(s):

    This paper studies the factors that were associated with a bank's early exit from the Troubled Asset Relief Program (TARP) in 2009. Executive pay restrictions were often a rationale cited for early TARP exit, and high levels of CEO pay in 2008 were associated with banks being significantly more likely to escape TARP. In addition, we find that larger publicly traded banks with better accounting performance, the stronger capital ratios, and fewer troubled loans and other assets exited early. Banks that raised private capital in 2009 were significantly more likely to return the taxpayers’ money early. The original eight TARP recipients, which received $165 billion of the $245 billion passed out, had weak tangible common equity ratios at the end of 2008, relative to other TARP recipients. Those eight banks raised common equity capital in 2009, and all at least partially exited the government's embrace.

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    File URL: http://www.sciencedirect.com/science/article/pii/S157230891100012X
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    Article provided by Elsevier in its journal Journal of Financial Stability.

    Volume (Year): 8 (2012)
    Issue (Month): 1 ()
    Pages: 32-42

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    Handle: RePEc:eee:finsta:v:8:y:2012:i:1:p:32-42
    Contact details of provider: Web page: http://www.elsevier.com/locate/jfstabil

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    1. Acharya, Viral V., 2009. "A theory of systemic risk and design of prudential bank regulation," Journal of Financial Stability, Elsevier, vol. 5(3), pages 224-255, September.
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    8. Courtadon, Georges, 1982. "The Pricing of Options on Default-Free Bonds," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 17(01), pages 75-100, March.
    9. Brennan, Michael J. & Schwartz, Eduardo S., 1977. "Savings bonds, retractable bonds and callable bonds," Journal of Financial Economics, Elsevier, vol. 5(1), pages 67-88, August.
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