{"title":"The (Un)Desired Effects of Government Bailouts: The Impact of TARP on the Interbank Market and Bank Risk-Taking","authors":"Patrick Behr, Wen Wang","doi":"10.2139/ssrn.3192503","DOIUrl":null,"url":null,"abstract":"We analyze how the inflow of TARP funds in the wake of the 2007/2008 financial crisis impacted banks’ interbank market activity. We show that TARP banks’ interbank market activity was impacted in a statistically and economically significant way. Their interbank lending via federal funds sold increased by 77 percent relative to the mean of the control group of non-TARP banks. We further show that among the TARP banks, the most affected ones also increased credit risk taking, while at the same time not increasing profitability. These findings suggest a new, heretofore not investigated channel through which TARP may have increased banks’ moral hazard incentives.","PeriodicalId":127865,"journal":{"name":"Political Economy: Budget","volume":"21 1","pages":"0"},"PeriodicalIF":0.0000,"publicationDate":"2019-03-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"3","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Political Economy: Budget","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.2139/ssrn.3192503","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"","JCRName":"","Score":null,"Total":0}
引用次数: 3
Abstract
We analyze how the inflow of TARP funds in the wake of the 2007/2008 financial crisis impacted banks’ interbank market activity. We show that TARP banks’ interbank market activity was impacted in a statistically and economically significant way. Their interbank lending via federal funds sold increased by 77 percent relative to the mean of the control group of non-TARP banks. We further show that among the TARP banks, the most affected ones also increased credit risk taking, while at the same time not increasing profitability. These findings suggest a new, heretofore not investigated channel through which TARP may have increased banks’ moral hazard incentives.
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