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  5. An Assessment of TARP Assistance to Financial Institutions

Journal of Economic Perspectives

ISSN 0895-3309 (Print) | ISSN 1944-7965 (Online)

An Assessment of TARP Assistance to Financial Institutions

  • Charles W. Calomiris
  • Urooj Khan
Journal of Economic Perspectives
vol. 29, no. 2, Spring 2015
(pp. 53–80)
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Abstract

Six years after the passage of the 2008 Troubled Asset Relief Program, commonly known as TARP, it remains hard to measure the total social costs and benefits of the assistance to banks provided under TARP programs. TARP was not a single approach to assisting weak banks but rather a variety of changing solutions to a set of evolving problems. TARP's passage was associated with significant improvements in financial markets and the health of financial intermediaries, as well as an increase in the supply of lending by recipients. However, a full evaluation must also take into account other factors, including the risks borne by taxpayers in the course of the bailouts; moral-hazard costs that could result in more risk-taking in the future; and social costs related to perceived unfairness. Our evaluation is organized in five parts: 1) What did policymakers do? 2) What are the proper objectives of interventions like TARP assistance to financial institutions? 3) Did TARP succeed in those economic objectives? 4) Were TARP funds allocated purely on an economic basis, or did political favoritism play a role? 5) Would alternative policies, either alongside or instead of TARP, and alternative design features of TARP, have worked better?

Citation

Calomiris, Charles W., and Urooj Khan. 2015. "An Assessment of TARP Assistance to Financial Institutions." Journal of Economic Perspectives, 29 (2): 53–80. DOI: 10.1257/jep.29.2.53

JEL Classification

  • E44 Financial Markets and the Macroeconomy
  • E63 Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
  • G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
  • G28 Financial Institutions and Services: Government Policy and Regulation
  • H81 Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts
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