TARP Funds Distribution: Evidence from Bank Internal Capital Markets

25 Pages Posted: 2 Sep 2012

See all articles by Elisabeta Pana

Elisabeta Pana

Central Connecticut State University

Tarun K. Mukherjee

University of New Orleans

Date Written: August 1, 2012

Abstract

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

Pana, Elisabeta and Mukherjee, Tarun K., TARP Funds Distribution: Evidence from Bank Internal Capital Markets (August 1, 2012). Midwest Finance Association 2013 Annual Meeting Paper. Available at SSRN: https://ssrn.com/abstract=2140243 or http://dx.doi.org/10.2139/ssrn.2140243

Elisabeta Pana (Contact Author)

Central Connecticut State University ( email )

1615 Stanley Street
New Britain, CT 06050
United States

Tarun K. Mukherjee

University of New Orleans ( email )

2000 Lakeshore Drive
New Orleans, LA 70148
United States

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