Lasting effects of Government aid in the financial sector: A study on the long term effects of TARP on US banks’ profitability and risk-taking behaviour

Sammanfattning

This study examines if the financial aid received by banks through the TARP program as a response to the 2008 great financial crisis has influenced the recipient banks in the long term to change their behavior compared to non recipients. This is tested through a difference in difference inspired panel data regressions on ROA, ROE, NPL, Netco, Tier 1 capital ratio, and Z-score. With the data being taken from the FDIC and US department of treasury in order to construct the required dataset. With these we test the significance, value, and direction of coefficient of TARP for the receiving banks post 2008 in order to ascertain if there was an impact and if so how it affects the banks. We find that TARP banks have a significantly lower NPL, Netco, and Tier 1 capital ratio suggesting that there has been a systematic shift in risk taking behavior in the TARP receiving banks. However, nothing can be concluded with respect to differences in profitability between the groups of banks.