TARP and other Bank Bailouts and Bail-Ins around the World: Connecting Wall Street, Main Street, and the Financial System

Financial crises are recurring phenomena that result in the financial distress of systemically important banks, making it imperative to understand how to best respond to such crises and their consequences. Two policy responses became prominent for dealing with these distressed institutions since the last Global Financial Crisis: bailouts and bail-ins. The main questions surrounding these responses touch everyone: Are bailouts or bail-ins good for the financial system and the real economy? Is it essential to save distressed financial institutions by putting taxpayer money at risk in bailouts, or is it better to use private money in bail-ins instead? Are there better options, such as first lines of defense that help prevent such distress in the first place? Can countercyclical prudential and monetary policies lessen the likelihood and severity of the financial crises that often bring about this distress? Through careful analysis, authors Berger and Roman review and critically assess the extant theoretical and empirical research on many resolution approaches and tools. Placing special emphasis on lessons learned from one of the biggest bailouts of all time, the Troubled Asset Relief Program (TARP), while also reviewing other programs and tools, TARP and Other Bank Bailouts and Bail-Ins around the World sheds light on how best to protect the financial system on Wall Street and the real economy on Main Street.

Presents a well-informed and rich account of bailouts, bail-ins, and other resolution approaches to resolve financially distressed banks.Uses TARP as a key case study of bailouts that has been thoroughly researched.Provides valuable research and policy guidance for dealing with future financial crises.

I Introductory materials 1. Introduction to bank bailouts, bail-ins and the related topics covered in the book 2. Conditions that generally bring about bank bailouts, bail-ins, and other resolution methods 3. Descriptions of the TARP program, other bank bailouts and bail-ins, and other resolution approaches in the United States and around the world 4. Theoretical background on bank bailouts, bail-ins, and other resolution approaches

II Empirical research on TARP 5. Methodologies used in most of the TARP empirical studies 6. Determinants of applying for and receiving TARP funds and exiting early from the program 7. Effects of TARP on recipient banks’ valuations 8. Effects of TARP on market discipline 9. Effects of TARP on bank leverage risk 10. Effects of TARP on bank competition 11. Effects of TARP on bank credit supply 12. Effects of TARP on bank portfolio risk 13. Effects of TARP on recipient banks’ credit customers 14. Effects of TARP on the real economy 15. Effects of TARP on systemic risk

III Empirical evidence bank bailouts other than TARP, bail-ins, and other resolution approaches 16. Empirical research on bailouts other than TARP 17. Empirical research on bail-ins 18. Empirical research on other resolution approaches

IV First lines of defense to help avoid bailouts, bail-ins, and other resolutions 19. Mechanisms for the first lines of defense 20. Capital requirements 21. Liquidity requirements 22. Stress tests 23. Prudential regulatory activity restrictions 24. Prudential supervision 25. Deposit insurance 26. Direct government ownership of banks

V Looking toward the future 27. Social costs and benefits 28. Implications for bank policymakers and bank managers 29. Open research questions to be addressed by future research