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    The Impact of TARP Capital Infusion on Bank Liquidity Creation: Does Bank Size Matter?

    Access Status
    Open access via publisher
    Authors
    Zheng, Chen
    Cheung, Adrian Wai Kong
    Cronje, Tom
    Date
    2022
    Type
    Journal Article
    
    Metadata
    Show full item record
    Citation
    Zheng, C. and Cheung, A.W.K. and Cronje, T. 2022. The Impact of TARP Capital Infusion on Bank Liquidity Creation: Does Bank Size Matter? International Journal of Central Banking. 8: 2.
    Source Title
    International Journal of Central Banking
    Additional URLs
    https://www.ijcb.org/journal/ijcb22q2a7.htm
    ISSN
    1815-4654
    Faculty
    Faculty of Business and Law
    School
    School of Accounting, Economics and Finance
    URI
    http://hdl.handle.net/20.500.11937/88832
    Collection
    • Curtin Research Publications
    Abstract

    This paper uses the Troubled Asset Relief Program (TARP) to examine whether the effect of capital support on bank liquidity creation differs depending upon bank size. We find that the relationship between TARP and liquidity creation is positive for small banks, but the relationship is insignificant for large banks. Further analysis shows that the positive and highly significant effect of TARP on small banks’ liquidity creation may take longer to materialize, and that this increase in liquidity creation is experienced only by small TARP banks that did not repay early. We also find that the positive effect of TARP is driven mainly by the asset-side (on-balance-sheet) liquidity creation of small banks, and that this effect holds in most lending categories. These findings yield important policy implications for bank bailouts.

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