TARP Funds Distribution: Evidence from Bank Internal Capital Markets
25 Pages Posted: 2 Sep 2012
Date Written: August 1, 2012
In this paper, we investigate the role played by the internal capital markets of bank holding companies in the distribution of the Troubled Asset Relief Program (TARP) funds. Our results suggest that TARP capital injections led to a preservation of the structure of the bank loan portfolio of program participants relative to non-participants. We also find that TARP investments improved the internal capital allocation among bank subsidiaries. We show that prior to TARP , program participants and non-participants allocated more capital to bank subsidiaries with a lower-quality asset portfolio. In the aftermath of TARP, program participants transferred funds to bank subsidiaries with better-quality of loan portfolios and higher need of capital. Our results indicate that retained earnings associated with higher profitability reduced the need for capital transfer.
Keywords: capital purchase program, capital infusion, bank performance
JEL Classification: E61, E63, G12, G14, G18
Suggested Citation: Suggested Citation