Impacts of TARP Financial Institutions
15 Pages Posted: 24 Nov 2015
Date Written: November 16, 2015
Abstract
Insolvency for any of the four largest US commercial banks during the financial crisis could have had disastrous effects on global, or at least US, financial markets. Allowing one of these banks to become insolvent was a significant risk. The US Treasury chose to implement the Troubled Asset Relief Program (TARP), injecting capital with the government becoming a senior preferred stockholder. This study provides analysis of the vulnerability of the four largest banks. The study does not examine alternatives to the TARP program. The consistency between the results in this study and the confidential Federal Reserve Supervisory Capital Assessment Program shows the effectiveness of the analysis developed here, although the goals of the two analyses were different. The TARP program restored some confidence in the US financial system. The study should promote debate of some policy alternatives mentioned in the conclusions to avoid the necessity for a future TARP capital injection.
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