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The Long Arm Of The TARP

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Since the bonus ban situation is fluid, it is worth considering how far a bonus ban on all TARP, or indeed, all bailout recipients would actually reach. It depends on the answers to a series of questions like, "are subsidiaries of bailout recipients covered?" "Do they have to be majority owned subsidiaries?" "Parents of bailout recipients?" "What about firms that got financial guarantees but not actual cash?" and the like. Still, you might be surprised. For example:

  • Blackrock is one third owned by PNC, which took about $7.5 billion in bailout money.
  • Harris Williams, the mid-market investment bank is a PNC subsidiary.
  • Lava Trading is a Citigroup subsidiary.
  • Transaction processor Elavon Merchant Services/NOVA information systems is a U.S. Bancorp subsidiary.
  • American Express Travel is, obviously, an American Express subsidiary.
  • CIT Group holds dozens of shipping marine leasing and marine holding company assets.

Of course, this doesn't even begin to touch the reach if firms that have taken financial guarantees, like GE Capital, are included.
No bonus for you!


TARP Charts!

The Federal Reserve has this new paper out about TARP that does a bit of highly suggestive eyebrow raising about some banks that shall remain nameless. They start from the awkward fact that TARP wanted everything in one bag but didn't want the bag to be heavy, or as they put it: The conflicted nature of the TARP objectives reflects the tension between different approaches to the financial crisis. While recapitalization was directed at returning banks to a position of financial stability, these banks were also expected to provide macro-stabilization by converting their new cash into risky loans. TARP was a use of public tax-payer funds and some public opinion argued that the funds should be used to make loans, so that the benefit of the funds would be passed through directly to consumers and businesses. So you might reasonably ask: were TARP funds locked in the vault to return the recipient banks to financial health, or blown on loans to risky ventures, or other? Well, here is Figure 1 (aggregate commercial and industrial loans from commercial banks in the U.S.): So ... not loaned then. But that's not important! The authors are actually looking not primarily at aggregate amounts of loans but at riskiness of loans and here's what they get: