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!
New study: How does Europe become a leading player for software and IT services?
03.04.2017 | Fraunhofer-Institut für System- und Innovationsforschung (ISI)
Reusable carbon nanotubes could be the water filter of the future, says RIT study
30.03.2017 | Rochester Institute of Technology
More and more automobile companies are focusing on body parts made of carbon fiber reinforced plastics (CFRP). However, manufacturing and repair costs must be further reduced in order to make CFRP more economical in use. Together with the Volkswagen AG and five other partners in the project HolQueSt 3D, the Laser Zentrum Hannover e.V. (LZH) has developed laser processes for the automatic trimming, drilling and repair of three-dimensional components.
Automated manufacturing processes are the basis for ultimately establishing the series production of CFRP components. In the project HolQueSt 3D, the LZH has...
Reflecting the structure of composites found in nature and the ancient world, researchers at the University of Illinois at Urbana-Champaign have synthesized thin carbon nanotube (CNT) textiles that exhibit both high electrical conductivity and a level of toughness that is about fifty times higher than copper films, currently used in electronics.
"The structural robustness of thin metal films has significant importance for the reliable operation of smart skin and flexible electronics including...
The nearby, giant radio galaxy M87 hosts a supermassive black hole (BH) and is well-known for its bright jet dominating the spectrum over ten orders of magnitude in frequency. Due to its proximity, jet prominence, and the large black hole mass, M87 is the best laboratory for investigating the formation, acceleration, and collimation of relativistic jets. A research team led by Silke Britzen from the Max Planck Institute for Radio Astronomy in Bonn, Germany, has found strong indication for turbulent processes connecting the accretion disk and the jet of that galaxy providing insights into the longstanding problem of the origin of astrophysical jets.
Supermassive black holes form some of the most enigmatic phenomena in astrophysics. Their enormous energy output is supposed to be generated by the...
The probability to find a certain number of photons inside a laser pulse usually corresponds to a classical distribution of independent events, the so-called...
Microprocessors based on atomically thin materials hold the promise of the evolution of traditional processors as well as new applications in the field of flexible electronics. Now, a TU Wien research team led by Thomas Müller has made a breakthrough in this field as part of an ongoing research project.
Two-dimensional materials, or 2D materials for short, are extremely versatile, although – or often more precisely because – they are made up of just one or a...
28.04.2017 | Event News
20.04.2017 | Event News
18.04.2017 | Event News
28.04.2017 | Medical Engineering
28.04.2017 | Earth Sciences
28.04.2017 | Life Sciences