37 Pages Posted: 4 Jun 2010 Last revised: 29 Mar 2012
Date Written: September 21, 2010
This paper studies the factors that were associated with a bank’s early exit from TARP in 2009. Executive pay restrictions were often a rationale cited for early TARP exit, and high levels of CEO pay were associated with banks being significantly more likely to escape TARP. In addition, we find that larger publicly traded banks with better accounting performance, 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.
Keywords: bailout, banks, banking, Basel capital standards, callable bonds, capital ratios, Capital Purchase Program (CPP), dividends, Emergency Economic Stabilization Act (EESA), hybrid securities, investment, preferred stock, Targeted Investment Program (TIP), Troubled Asset Relief Program (TARP)
JEL Classification: G01, G13, G21, G28, G32
Suggested Citation: Suggested Citation