Journal of banking & finance, 2013, Vol.37(12), pp. 4777-4792
To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jbankfin.2013.08.009 Byline: Lei Li Abstract: This paper investigates the determinants of the Troubled Asset Relief Program (TARP) funds distribution to banks and the stimulus effect of TARP investments on credit supply in the economy. Using banks' political and regulatory connections as instruments, this paper finds that TARP investments increased bank loan supply by an annualized rate of 6.36% for banks with below median Tier 1 capital ratios. This increase is found in all major types of loans and can be translated into $404 billion of additional loans for all TARP banks. On average, TARP banks employed about one-third of their TARP capital to support new loans and kept the rest to strengthen their balance sheets. Furthermore, there is little evidence that loans made by TARP banks had lower quality than those by non-TARP banks. In sum, this paper shows a positive stimulus effect of TARP on credit supply during the 2008-2009 financial crisis. Article History: Received 21 August 2012; Accepted 12 August 2013 Article Note: (footnote) [star] I especially thank Philip Strahan for his insightful comments and advice. I also thank Pierluigi Balduzzi, Mary Ellen Carter, David Chapman, Jie He, Edith Hotchkiss, Christopher James, Oguzhan Karakas, Darren Kisgen, Ike Mathur (the editor), Jeffrey Pontiff, Jun Qian, Jon Reuter, Jerome Taillard, Hassan Tehranian, Zhipeng Zhang, and an anonymous reviewer for helpful comments. All errors are my own.
Banks (Finance) ; Bank Loans;
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