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TARP and the long-term perception of risk

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  • Semaan, Elias
  • Drake, Pamela Peterson

Abstract

The Capital Purchase Program (CPP) was intended to enhance capital and preserve lending capacity of banks, but the role of this program in affecting the risk of participating banks has been unresolved. We address this issue by investigating the market’s long-term perception of risk for financial institutions participating in the CPP. Leading up to and including the crisis, the systematic and idiosyncratic variances of the stock returns of all financial firms increased; following CPP, the relative idiosyncratic risk of CPP participants remained higher than for those not participating in CPP for four years following CPP.

Suggested Citation

  • Semaan, Elias & Drake, Pamela Peterson, 2016. "TARP and the long-term perception of risk," Journal of Banking & Finance, Elsevier, vol. 68(C), pages 216-235.
    • Handle: RePEc:eee:jbfina:v:68:y:2016:i:c:p:216-235
    DOI: 10.1016/j.jbankfin.2016.03.010
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    Cited by:

    1. Fan, Yaoyao & Huang, Yichu & Jiang, Yuxiang & Liu, Frank Hong, 2020. "Watch out for bailout: TARP and bank earnings management," Journal of Financial Stability, Elsevier, vol. 51(C).
    2. Berger, Allen N. & Demirgüç-Kunt, Asli, 2021. "Banking research in the time of COVID-19," Journal of Financial Stability, Elsevier, vol. 57(C).
    3. Florentina Melnic, 2017. "The Financial Crisis Response. Comparative Analysis Between European Union And Usa," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 19, pages 129-155, June.
    4. Jinyong Kim & Mingook Kim & Yongsik Kim, 2020. "Bank Transparency and the Market’s Perception of Bank Risk," Journal of Financial Services Research, Springer;Western Finance Association, vol. 58(2), pages 115-142, December.
    5. Allen N. Berger, 2018. "The Benefits and Costs of the TARP Bailouts: A Critical Assessment," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 8(02), pages 1-29, June.

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    More about this item

    Keywords

    TARP; Idiosyncratic risk; Risk-taking; Financial industry regulation;
    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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