Did Capital Infusions Enhance Bank Recovery from the Great Recession?

50 Pages Posted: 22 Nov 2011 Last revised: 19 Dec 2013

See all articles by Wendy Liu

Wendy Liu

University of Kentucky; Texas A&M University

James W. Kolari

Texas A&M University - Department of Finance

T. Kyle Tippens

Abilene Christian University - College of Business Administration

Donald R. Fraser

Texas A&M University - Department of Finance

Date Written: September 23, 2013

Abstract

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

Liu, Wei and Kolari, James W. and Tippens, T. Kyle and Fraser, Donald R., Did Capital Infusions Enhance Bank Recovery from the Great Recession? (September 23, 2013). Journal of Banking and Finance, Volume 37, Issue 12, December 2013, Pages 5048–5061. Available at SSRN: https://ssrn.com/abstract=1962795 or http://dx.doi.org/10.2139/ssrn.1962795

Wei Liu

University of Kentucky ( email )

Gatton College of Business and Economics
Lexington, KY 40506
United States

Texas A&M University ( email )

351E Wehner
College Station, TX 77843-4218
United States
979-458-4520 (Phone)

James W. Kolari (Contact Author)

Texas A&M University - Department of Finance ( email )

MS-4218
Department of Finance
College Station, TX TX 77843-4218
United States
979-845-4803 (Phone)
979-845-3884 (Fax)

T. Kyle Tippens

Abilene Christian University - College of Business Administration ( email )

ACU Box 29333
Abilene, TX 79699
United States
(325) 674-4947 (Phone)
(325) 674-2564 (Fax)

Donald R. Fraser

Texas A&M University - Department of Finance ( email )

430 Wehner
College Station, TX 77843-4218
United States
979-845- 2020 (Phone)

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