We investigate benefits to business borrowers from bank bailouts – specifically the Troubled Asset Relief Program (TARP). Applying difference-in-difference methodology to loan-level data, we find more favorable contract terms in five dimensions – spread, amount, maturity, collateral, and...

This paper develops a model to analyze two different bad bank schemes, an outright sale of toxic assets to a state-owned bad bank and a repurchase agreement between the bad bank and the initial bank. For both schemes, we derive a critical transfer payment that induces a bank manager to...

The recent financial crisis highlights the importance of both regulatory and market discipline. Government reactions to the crisis included expanding deposit insurance coverage and rescuing troubled institutions, including some institutions that might not otherwise be considered too important to...

A bank's decision on loan supply and capital structure determines its immediate bankruptcy risk as well as the future availability of internal funds. These internal funds in turn determine a bank's future costs of external finance and future vulnerability to bankruptcy risks. We study these...

We address two key issues concerning bank bailout effects on depositor and bank behavior. The first is whether bailouts weaken or strengthen market discipline by depositors through deposit supplies. The second is if bailed-out banks decrease or increase their deposit demands. These questions can...

Governments provide guarantees to banks, such as deposit insurance, often increasing them during financial crises. While risk effects are well researched, impacts on bank output remain largely unexplored. We investigate bank output effects using data from 75 countries on bank liquidity creation,...

Liquidity creation is one of banks’ raisons d’être. But what happens to liquidity creation and risk taking when a bank is identified as distressed by regulatory bodies and subjected to regulatory interventions and/or receives capital injections? What are the long-run effects of such...

Business cycles imply liquidity risks for banks. This paper explores how these risks influence bank lending over the cycle. With forward-looking banks, lending cycles, credit booms and busts, or suppressed and highly fragile bank systems can emerge, depending on the magnitude of liquidity risks....

A bank's decision on loan supply and capital structure determines its immediate bankruptcy risk as well as the future availability of internal funds. These internal funds in turn determine a bank's future costs of external finance and future vulnerability to bankruptcy risks. We study these...

Economic agents pursue government funds using political connections, but it is sometimes unclear which types of connections and whose connections matter, and which agents have opportunities to benefit. We address these issues for the over one-half-trillion-dollar Paycheck Protection Program...