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Connectedness and ContagionProtecting the Financial System from Panics$
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Hal S. Scott

Print publication date: 2016

Print ISBN-13: 9780262034371

Published to MIT Press Scholarship Online: January 2017

DOI: 10.7551/mitpress/9780262034371.001.0001

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Capital Purchase Program and Other TARP Support Programs

Capital Purchase Program and Other TARP Support Programs

(p.251) 22 Capital Purchase Program and Other TARP Support Programs
Connectedness and Contagion

Hal S. Scott

The MIT Press

With the onset of the financial crisis, the Troubled Asset Relief Program (TARP) was established by the Emergency Economic Stabilization Act of 2008 (EESA) to stabilize the US financial system. The core of the recapitalization plan under TARP was the Capital Purchase Program (CPP), under which “healthy, viable” financial institutions would receive capital injections from Treasury. This chapter examines the CPP and other TARP support programs. The CPP was open to all qualified financial institutions approved by their respective banking regulators, whether large or small. The government wanted the healthy as well as less healthy major banks to take government assistance to avoid publicly identifying any banks as insolvent. While it is clear that politics favored giving support to small as well as large banks, the failure of small banks would not have endangered the system. The remainder of the chapter discusses the expiration and wind-down of TARP and TARP housing programs.

Keywords:   Capital Purchase Program, financial policy, monetary policy, financial crisis, capital injection, Troubled Asset Relief Program, recapitalization, financial institutions, Emergency Economic Stabilization Act 2008, TARP housing programs

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