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The effect of TARP on lending: Evidence from the lead bank’s share in syndicated loans

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  • Bolortuya Enkhtaivan

    (Western Michigan University)

  • Wenling Lu

    (Western Michigan University)

Abstract

We investigate the effect of the Troubled Asset Relief Program (TARP) on the shares of lead banks in syndicated loans by using quarterly data for the period from 2008 to 2011. We find that TARP capital injections to lead banks have a significantly positive effect on their shares of syndicated loans. Specifically, we estimate that the effect of TARP on the lending of lead banks increases their shares by 6.1% that is equivalent to an additional $50.37 million for an average syndicated loan of $840 million. The significantly positive effect is stronger for a lead bank that is larger, has a greater appetite for risk, and is not under supervisory stress. Overall, our results show that TARP was an effective mechanism for promoting the lending of lead banks. The larger fractional share of lead banks in syndicated loan packages signals both the loan quality and their commitment to mitigating the adverse selection and moral hazard problems. This study sheds new light on the mixed evidence of TARP on lending and contributes to the research and policy debates on the role of stringent supervisory scrutiny in lending.

Suggested Citation

  • Bolortuya Enkhtaivan & Wenling Lu, 2021. "The effect of TARP on lending: Evidence from the lead bank’s share in syndicated loans," Review of Quantitative Finance and Accounting, Springer, vol. 57(4), pages 1169-1193, November.
    • Handle: RePEc:kap:rqfnac:v:57:y:2021:i:4:d:10.1007_s11156-021-00974-5
    DOI: 10.1007/s11156-021-00974-5
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    Cited by:

    1. Yu-Li Huang & Chung-Hua Shen & Kun-Li Lin, 2022. "Did the rating standard for banks change after the crisis?," Review of Quantitative Finance and Accounting, Springer, vol. 58(4), pages 1617-1663, May.

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    More about this item

    Keywords

    TARP; Syndicated loans; Information asymmetry; Bailout;
    All these keywords.

    JEL classification:

    • 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

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