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Did Saving Wall Street Really Save Main Street? The Real Effects of TARPon Local Economic Conditions

Published online by Cambridge University Press:  04 October 2017

Allen N. Berger  and
Raluca A. Roman
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Abstract

We investigate whether saving Wall Street through TARP really saved Main Street during the recent financial crisis. Our difference-in-difference analysis suggests that TARP statistically and economically significantly increased net job creation and net hiring establishments and decreased business and personal bankruptcies. The results are robust, including accounting for endogeneity. The main mechanisms driving the results appear to be increases in commercial real estate lending and off-balance-sheet real estate guarantees. These results suggest that saving Wall Street via TARP may have helped save Main Street, complementing the TARP literature and contributing to the cost–benefit debate.

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Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 52 , Issue 5 , October 2017 , pp. 1827 - 1867
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2017 

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Footnotes

1

The views expressed herein are those of the authors and do not necessarily reflect the views of the Federal Reserve Bank of Kansas City or the Federal Reserve System. The authors thank Tobias Berg, Lamont Black, Marcia Cornett (the referee), Itay Goldstein, Jarrad Harford (the editor), Daniel Hartley, Alan Hess, Dasol Kim, Myron Kwast, Vasso Ioannidou, Van Son Lai, Lei Li, Richmond Mathews, Loretta Mester, Nada Mora, Chuck Morris, Lars Norden, Orgul Ozturk, Isha Sinwer, Mark Schweitzer, Rajdeep Sengupta, Neeltje Van Horen, Stephane Verani, Randy Verbrugge, Bastian von Beschwitz, and participants at presentations at the Federal Reserve Banks of Cleveland and Kansas City, Bank of Canada, the 2015 Allied Social Sciences Association Annual Meetings, the 2015 Financial Intermediation Research Society Meetings, the 2014 Federal Deposit Insurance Corporation/Journal of Financial Services Research Annual Banking Research Meetings, Temple University, Clemson University, and Dutch National Bank policy lecture series for helpful comments; Lamont Black, Christa Bouwman, and Jennifer Dlugosz for data on the Discount Window (DW) and Term Auction Facility (TAF) programs; John Sedunov for data on state minimum wage, marginal tax rate, and state government spending; and Zack Klingensmith for data on federal expenditures.

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