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The impact of TARP on bank efficiency

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  • Harris, Oneil
  • Huerta, Daniel
  • Ngo, Thanh

Abstract

This paper examines the impact of the Troubled Asset Relief Program (TARP) capital injections on the operational efficiency of commercial banks. Using a nonparametric Data Envelopment Analysis to measure bank efficiency, we document a deteriorating pattern in the operating efficiency for banks that received the capital injection from TARP funds that is not evident in non-TARP banks. We test the impact of TARP on the change in bank efficiency as well as the abnormal change in bank efficiency; yet, our results continue to hold. We attribute the decrease in the operating efficiency of TARP funded banks to the abated incentives of bank managers to adopt best practices that improve asset quality, and the moral hazard associated with bailouts.

Suggested Citation

  • Harris, Oneil & Huerta, Daniel & Ngo, Thanh, 2013. "The impact of TARP on bank efficiency," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 24(C), pages 85-104.
    • Handle: RePEc:eee:intfin:v:24:y:2013:i:c:p:85-104
    DOI: 10.1016/j.intfin.2012.12.001
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    More about this item

    Keywords

    Operating efficiency; TARP; Bank bailout;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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