Did Capital Infusions Enhance Bank Recovery from the Great Recession?
50 Pages Posted: 22 Nov 2011 Last revised: 19 Dec 2013
Date Written: September 23, 2013
This paper investigates the long-run recovery experience of U.S. banks that received capital infusions under the Capital Purchase Program (CPP), a part of the Troubled Asset Relief Program (TARP). Based on a dynamic recovery model, our results show that recovering CPP banks tended to be in better financial condition than other CPP banks. Long-run event study analyses of common stock prices reveal that, in the quarter after repayment of TARP funds, CPP banks experienced economically large and significant buy-and-hold wealth gains of 14 percent, equivalent to approximately $329 billion. We conclude that TARP was successful in fostering bank financial and stock price recovery.
Keywords: Bank capital, banking crisis, financial condition, long-run event study, TARP
JEL Classification: G01, G12, G22, G28, E65
Suggested Citation: Suggested Citation