Troubled Assets Relief Program (TARP)

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Read more about the 2008 Financial Crisis.

The Troubled Assets Relief Program (TARP) is a facility created by the US Government to buy distressed assets from financial institutions in response to the 2008 Financial Crisis. The program was created through the Emergency Economic Stabilization Act of 2008 and is managed by the Office of Financial Stability at the US Treasury. The TARP was initially designed to buy distressed mortgage-backed securities from financial institutions but evolved to encompass corporate debt and equity injections into banks.

The Emergency Economic Stabilization Act of 2008, enacted on October 3, 2008, allows the Treasury to spend up to $700 billion on this program. The Treasury is allowed to draw up to $250 billion immediately after the enactment, then requires the President to certify an additional $100 billion; another $350 billion are subject to further Congressional approval.[1]

The original idea behind TARP was to create liquidity in the credit markets by buying (and freeing up) assets tied to mortgages from banks -- hence allowing them to continue lending. However, on October 13, 2008, the Treasury announced that it was going to take equity stakes in nine major banks and encouraged smaller banks to apply for equity injections.

Institutions which participate in this program will be subject to more oversight from the government and would have to limit executive compensation.

On November 12, 2008, Treasury Secretary Henry Paulson announced that no TARP funds would be used to purchase troubled assets.


References

  1. Economic rescue swiftly signed into law. AFP (2008-10-03).
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