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Federal Reserve Bank of Kansas City
Research Working Paper
Did bank borrowers benefit from the TARP program : the effects of TARP on loan contract terms
Allen N. Berger
Tanakorn Makaew
Raluca Roman
Abstract

We study the effects of the Troubled Asset Relief Program (TARP) on loan contract terms to businesses borrowing from recipient banks. Using a difference-in-difference analysis, we find that TARP led to more favorable terms to these borrowers in all five contract terms studied – loan amounts, spreads, maturities, collateral, and covenants. This suggests recipient banks' borrowers benefited from TARP. These findings are statistically and economically significant, and are robust to dealing with potential endogeneity issues and other checks.

The contract term improvements are concentrated primarily among safer borrowers, consistent with a decrease in the exploitation of moral hazard incentives. Benefits extended to both relationship and non-relationship borrowers, and to term loan, revolver, and other loan borrowers. Results contribute to the TARP benefits-costs debate, by adding to the list of benefits of the program.


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Allen N. Berger & Tanakorn Makaew & Raluca Roman, Did bank borrowers benefit from the TARP program : the effects of TARP on loan contract terms, Federal Reserve Bank of Kansas City, Research Working Paper RWP 15-11, 01 Sep 2015.
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Keywords: Bailout; Bank loans; Financial crisis; TARP
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