Troubled Asset Relief Program - TARP

AAA

DEFINITION of 'Troubled Asset Relief Program - TARP'

A group of programs created and run by the U.S. Treasury to stabilize the country’s financial system, restore economic growth and prevent foreclosures in the wake of the 2008 financial crisis through purchasing troubled companies’ assets and equity. The Troubled Asset Relief Program initially gave the Treasury purchasing power of $700 billion to buy illiquid mortgage-backed securities and other assets from key institutions in an attempt to restore liquidity to the money markets. The fund was created on October 3, 2008 with the passage of the Emergency Economic Stabilization Act. The Dodd-Frank Act later reduced the $700 billion authorization to $475 billion.

INVESTOPEDIA EXPLAINS 'Troubled Asset Relief Program - TARP'

Global credit markets came to a near standstill in September 2008, as several major financial institutions, such as Fannie Mae, Freddie Mac and American International Group, experienced severe financial problems, and as Lehman Brothers went bankrupt. Goldman Sachs and Morgan Stanley changed their charters to become commercial banks, in an attempt to stabilize their capital situations. TARP was intended to increase the liquidity of the secondary mortgage markets by purchasing the illiquid MBS, and through that, reducing the potential losses of the institutions that owned them.

The rules of TARP demanded that companies involved lose certain tax benefits and in many cases placed limits on executive compensation and forbade fund recipients from awarding bonuses to their top 25 highest-paid executives. From the program’s inception until the final date when funds could be extended on October 3, 2010, $245 billion went to stabilize banks, $27 billion went to programs to increase credit availability, $80 billion went to the U.S. auto industry (specifically, to GM and Chrysler), $68 billion went to stabilize AIG, and $46 billion went to foreclosure prevention programs (such as Making Home Affordable). As of December 2013, the Treasury was wrapping up TARP and said the government’s investments had earned more than $11 billion for taxpayers. The government says TARP prevented the American auto industry from failing and saved more than 1 million jobs, helped stabilize banks and restore credit availability for individuals and businesses, and prevented foreclosures.

RELATED TERMS
  1. Privatizing Profits And Socializing ...

    A phrase describing how businesses and individuals can successfully ...
  2. Capital Injection

    An investment of capital generally in the form of cash or equity ...
  3. Build America Bonds - BABs

    Taxable municipal bonds that feature tax credits and/or federal ...
  4. American Recovery And Reinvestment ...

    An act initiated and signed by U.S. President Barack Obama in ...
  5. TARP Bonuses

    A buzzword coined by the financial media during the financial ...
  6. Federal Reserve Board - FRB

    The governing body of the Federal Reserve System. The seven members ...
Related Articles
  1. The Federal Reserve
    Economics

    The Federal Reserve

  2. Top 6 U.S. Government Financial Bailouts
    Insurance

    Top 6 U.S. Government Financial Bailouts

  3. Should You Buy Banks'
    Insurance

    Should You Buy Banks' "Toxic" Assets?

  4. Liquidity And Toxicity: Will TARP Fix ...
    Insurance

    Liquidity And Toxicity: Will TARP Fix ...

comments powered by Disqus
Hot Definitions
  1. Correlation

    In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used ...
  2. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
  3. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  4. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  5. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  6. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
Trading Center