The executive pay provisions of the TARP – the Troubled Asset Relief Program – stoked controversy. Bankers claimed the rules would thwart their efforts to attract and retain the best executives. But the pay rules may have had an unintended benefit of reducing the scope of the program, researchers say.
A newly published report in the Journal of Banking, Finance & Accounting finds that pay provisions did discourage some banks from participating in TARP, which was intended to help banks weather the 2008-2009 financial crisis, according to researchers Mary Ellen Carter of Boston College, Brian Cadman, of the University of Utah, and Luann J. Lynch, of the University of Virginia.
Examining 263 publicly traded banks that were approved for TARP, the new study found that 35 banks rejected the funds and that this decision was related to higher levels of CEO pay. But this decision didn't seem to hurt them – they fared just as well as their peers that did take TARP money. As a result, the pay provisions in TARP may have deterred banks that didn't really need the money from taking it.
The study also suggests that from a personal standpoint bankers may have been right to worry about TARP's pay limits: banks that took the funds did see higher executive turnover than those that didn't. But their performance didn't suffer. Banks that turned down TARP money—often derisively referred to as "bailouts"— did just as much lending afterwards and had just as much financial strength, measured in terms of capital ratios, as those that accepted it.
"While we don't know exactly why these banks refused the funds, we do know that some high-profile bankers complained that the pay restrictions were onerous. Our study suggests that TARP may have been better designed than bankers would have you believe," Carter said. "The restrictions gave financial incentives for bank executives to think carefully about participating and, if they did participate, to get out from underneath the program as quickly as possible."
TARP was, perhaps, the most controversial of the many policy measures undertaken during the financial crisis. The U.S. government originally budgeted $700 billion and ultimately paid out about $400 billion to shore up the U.S. financial system. Some viewed the program as corporate welfare while others saw it as creeping socialism. Nobody, but the bankers who needed the money, seemed to like it much. But in the end, TARP appears to have succeeded: banks, for the most part, survived the crisis and are paying back the money.
The full report, "Executive Compensation Restrictions: Do They Restrict Firms' Willingness to Participate in TARP", is available at the following link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2167183.
Ed Hayward | EurekAlert!
Rutgers-led innovation could spur faster, cheaper, nano-based manufacturing
14.02.2018 | Rutgers University
New study from the University of Halle: How climate change alters plant growth
12.01.2018 | Martin-Luther-Universität Halle-Wittenberg
Animal photoreceptors capture light with photopigments. Researchers from the University of Göttingen have now discovered that these photopigments fulfill an...
On 15 March, the AWI research aeroplane Polar 5 will depart for Greenland. Concentrating on the furthest northeast region of the island, an international team...
The world’s second-largest ice shelf was the destination for a Polarstern expedition that ended in Punta Arenas, Chile on 14th March 2018. Oceanographers from...
At the 2018 ILA Berlin Air Show from April 25–29, the Fraunhofer Institute for Laser Technology ILT is showcasing extreme high-speed Laser Material Deposition (EHLA): A video documents how for metal components that are highly loaded, EHLA has already proved itself as an alternative to hard chrome plating, which is now allowed only under special conditions.
When the EU restricted the use of hexavalent chromium compounds to special applications requiring authorization, the move prompted a rethink in the surface...
At the ILA Berlin, hall 4, booth 202, Fraunhofer FHR will present two radar sensors for navigation support of drones. The sensors are valuable components in the implementation of autonomous flying drones: they function as obstacle detectors to prevent collisions. Radar sensors also operate reliably in restricted visibility, e.g. in foggy or dusty conditions. Due to their ability to measure distances with high precision, the radar sensors can also be used as altimeters when other sources of information such as barometers or GPS are not available or cannot operate optimally.
Drones play an increasingly important role in the area of logistics and services. Well-known logistic companies place great hope in these compact, aerial...
16.03.2018 | Event News
13.03.2018 | Event News
08.03.2018 | Event News
16.03.2018 | Earth Sciences
16.03.2018 | Physics and Astronomy
16.03.2018 | Life Sciences