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Did the U.S. Treasury’s capital purchase program (CPP) help bank lending and business activity?

  • Peter V. Egly
  • André Varella Mollick
Original Research

Abstract

The 2008 financial crisis led the U.S. Treasury to implement the capital purchase program (CPP) to revive commercial bank lending and hence stimulate business activity. Employing dynamic panel techniques and methodologies from the bank lending channel literature we find that after controlling for asset size, bank capital, and macroeconomic variables (real GDP growth rate and interest rate spreads), the impact of the CPP program is statistically significant only for money center banks. However, over our sample period from 2008Q3 to 2009Q4 we find a very modest impact on lending by only the largest banks. Overall, our results suggest that CPP’s business objective to boost loan growth and hence business activity during the crisis remained unfulfilled.

Keywords

Bank lending Capital purchase program TARP 

JEL Classification

E44 E52 

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Copyright information

© Springer Science+Business Media, LLC 2012

Authors and Affiliations

  1. 1.Department of Economics and FinanceUniversity of Texas–Pan AmericanEdinburgUSA

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