The effect of TARP on the propagation of real estate shocks: Evidence from geographically diversified banks |
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| Affiliation: | 1. Department of Banking and Finance, Monash Business School, Monash University, Caulfield Campus. PO Box 197, Caulfield East, Victoria 3145, Australia;2. Deceased;3. Centre for Financial Econometrics, Department of Finance, Deakin Business School, Deakin University, Victoria 3125, Australia;2. Faculty of Economics of Sciences, Ozyegin University, Nisantepe Mah. Orman Sok. No 34-36, Alemdag/Cekmekoy, 34794, Istanbul, Turkeyn;1. Champagne School of Management (Group ESC Troyes), Troyes, France;2. Newcastle University Business School, Newcastle University, Newcastle, United Kingdom;3. IPAG Business School, 184 Boulevard Saint-Germain, 75006 Paris, France;4. Durham University Business School, Durham University, Durham, United Kingdom;5. Université Paris-Est, IRG (EA 2354), UPEC, F-94000, Créteil, France;6. International School, Vietnam National University, Hanoi, Vietnam |
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| Abstract: | This study examines the effect of TARP on the propagation of real estate shocks via geographically diversified banks in the U.S. I find that TARP money provided for banks exposed to distressed areas (i.e., “affected” banks) was positively associated with small business loan originations in “non-distressed” areas (i.e., counties with smaller real estate shocks), mitigating the shock transmission. In addition, the bailout funds facilitated “affected” banks’ faster return to their pre-crisis level of franchise value. Overall, the marginal benefit of TARP funds seems to have been greater for “affected” TARP banks. I conclude that this policy helped “affected” banks cleanse/strengthen their balance sheets and recapitalize, which paved the way for increased lending. |
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