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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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Specific Criticisms of TARP

Specific Criticisms of TARP

(p.273) 24 Specific Criticisms of TARP
Connectedness and Contagion

Hal S. Scott

The MIT Press

This chapter considers the major criticisms of the Troubled Asset Relief Program (TARP). The first criticism is too favorable terms for Capital Purchase Program (CPP) recipients. The Treasury designed the terms for the CPP to be favorable for the banks to increase their capital base, to rescue the financial system, not to make money. Excessively demanding terms might have undermined the banks' ability to participate in the program, thereby making it difficult to achieve the objective of stabilizing the financial sector. The second criticism is too much or too little interference in recipient operations. As most of the largest banks exited CPP within a year of its implementation, discussions about potential excessive government interference in the day-to-day management of rescued firms concentrated on a few institutions such as Citigroup and AIG, in which the government held its position for a longer period. The third criticism is lack of enforcement of the terms of support. While the vast majority of CPP recipient institutions have exited the program, those that remain illustrate this problem. Majority of the remaining CPP institutions are smaller banks that were on the FDIC's “problem bank list” as of December 31, 2014.

Keywords:   Troubled Asset Relief Program, TARP, financial policy, financial regulation, Capital Purchase Program, CPP

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