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DID TARP DISTORT COMPETITION AMONG SOUND UNSUPPORTED BANKS?
Author(s) -
Koetter Michael,
Noth Felix
Publication year - 2016
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/ecin.12281
Subject(s) - bailout , loan , disbursement , economics , equity (law) , competition (biology) , financial system , monetary economics , business , finance , financial crisis , ecology , biology , political science , law , macroeconomics
This study investigates if the Troubled Asset Relief Program ( TARP ) distorted price competition in U.S. banking. Political indicators reveal bailout expectations after 2009, manifested as beliefs about the predicted probability of receiving equity support relative to failing during the TARP disbursement period. In addition, the TARP affected the competitive conduct of unsupported banks after the program stopped in the fourth quarter of 2009. Loan rates were higher, and the risk premium required by depositors was lower for banks with higher bailout expectations. The interest margins of unsupported banks increased in the immediate aftermath of the TARP disbursement but not after 2010. No effects emerged for loan or deposit growth, which suggests that protected banks did not increase their market shares at the expense of less protected banks. ( JEL G21, G28, L51)