The Performance of Banks around the Receipt and Repayment of TARP Funds: Over-Achievers versus Under-Achievers

49 Pages Posted: 2 May 2012

See all articles by Marcia Millon Cornett

Marcia Millon Cornett

Bentley University - Department of Finance

Lei Li

Federal Reserve Board

Hassan Tehranian

Boston College - Department of Finance

Date Written: February 12, 2012

Abstract

In this paper, we look at how the pre-crisis health of banks is related to the probability of receiving and repaying TARP capital. We find that financial performance characteristics that are related to the probability of receiving TARP funds differ for the healthiest (“over-achiever”) versus the least healthy (“under-achiever”) banks. We find that TARP under-achievers have some, but not consistent, weaknesses in income production. These banks also are experiencing liquidity issues as customers, shut out of public debt markets, get bank loans through draw downs of loan commitments. Unlike TARP under-achievers, TARP over-achievers’ loans are performing well. TARP over-achievers see increases in their return on loans in 2008Q3. Yet, the loss of liquidity (from decreases in core deposits and draw downs of loan commitments) hurt the abilities of these banks to continue their lending. Differences between under-achiever and over-achiever banks are also found for repayment and deadbeat TARP banks.

Keywords: Financial institutions, financial crisis, TARP, CPP

JEL Classification: G01, G11, G21, G28

Suggested Citation

Cornett, Marcia Millon and Li, Lei and Tehranian, Hassan, The Performance of Banks around the Receipt and Repayment of TARP Funds: Over-Achievers versus Under-Achievers (February 12, 2012). Available at SSRN: https://ssrn.com/abstract=2049387 or http://dx.doi.org/10.2139/ssrn.2049387

Marcia Millon Cornett

Bentley University - Department of Finance ( email )

175 Forest Street
Waltham, MA 02154
United States

Lei Li (Contact Author)

Federal Reserve Board ( email )

1801 K Street NW
Washington, DC 20036
United States

Hassan Tehranian

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States
617-552-3944 (Phone)
617-552-0431 (Fax)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
95
Abstract Views
857
rank
287,825
PlumX Metrics