The Impact of TARP Capital Infusion on Bank Liquidity Creation: Does Bank Size Matter?
This paper uses the Troubled Asset Relief Program (TARP) to examine whether the effect of capital support on bank liquidity creation differs depending upon bank size. We find that the relationship between TARP and liquidity creation is positive for small banks, but the relationship is insignific...
| Main Authors: | , , |
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| Format: | Journal Article |
| Published: |
Association of the International Journal of Central Banking
2022
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| Online Access: | https://www.ijcb.org/journal/ijcb22q2a7.htm http://hdl.handle.net/20.500.11937/88832 |
| Summary: | This paper uses the Troubled Asset Relief Program
(TARP) to examine whether the effect of capital support on
bank liquidity creation differs depending upon bank size. We
find that the relationship between TARP and liquidity creation
is positive for small banks, but the relationship is insignificant
for large banks. Further analysis shows that the positive and
highly significant effect of TARP on small banks’ liquidity creation
may take longer to materialize, and that this increase in
liquidity creation is experienced only by small TARP banks
that did not repay early. We also find that the positive effect
of TARP is driven mainly by the asset-side (on-balance-sheet)
liquidity creation of small banks, and that this effect holds in
most lending categories. These findings yield important policy
implications for bank bailouts. |
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