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badd99 badd99
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2 months ago
How did TARP help the banks in the United States during the financial crisis of 2007-2009?
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Macroeconomics


Edition: 3rd
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linakhalaflinakhalaf
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At the peak of the 2007-2009 financial crisis, the U.S. Congress passed emergency legislation authorizing the Treasury Department to spend $700 billion to stabilize the financial system. Of the $700 billion in TARP funds, $115 billion was used to increase the capital of the eight largest U.S. banks, which were all forced to participate. In essence, the banks were required to issue new shares that the government bought. Some of the banks didn't like this plan, because the government became a partial owner. In addition, all eight banks were obligated to limit the compensation of their senior executives. An additional $135 billion was used to increase the capital of smaller banks that applied for TARP support. These bank capital infusions—totaling $250 billion—gave the participating banks breathing room, and the financial system as a whole stabilized.

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