What is a tarp loan

what is a tarp loan

What is TARP?

TARP is the Troubled Asset Relief Program and was passed into law on Oct. 3, 2008 by President George W. Bush.

It was created by the U.S. government after the recent financial crisis. It was implemented to purchase equity and assets from financial companies in the hopes of strengthening the financial sector.

The program allows the U.S. Treasury to purchase or insure up to $700 billion of troubled assets, which are defined as residential or commercial mortgages or any other financial instrument that promotes financial market stability. This allows the Treasury to purchase difficult-to-value assets from financial institutions and banks.

Some of the companies that have received TARP funds include banking giants Citigroup, Bank of America, JPMorgan Chase, Wells Fargo, and auto manufacturers such as General Motors and Chrysler.

Although Congress authorized $700 billion for the TARP program, to date, only $417 billion has been disbursed. Currently, American taxpayers have already recovered 89 percent, or $371 billion of the total funds.

Affect on Business Lending

At the beginning of the financial crisis, when the market crashed, investors quickly withdrew billions from money market accounts. This

caused a significant drop, and subsequent pause, on the availability of business loans. Due to the lack of business lending, even on short-term agreements, many businesses struggled to remain afloat.

One contributing factor of economic growth and recovery is business. TARP was partially implemented to help stimulate business lending once again by providing lenders with the funds they needed.

But TARP did not just impact business loans; it addressed the subprime mortgage crisis. It was legally required to be conducted as to protect home values, college funds, and retirement accounts and to promote jobs and economic growth.

In recent news. concerns have arisen about the program’s efficacy for stimulating small business loans. TARP planned to raise capital at smaller banks and create small business loans through The Small Business Lending Fund. But instead of giving out small business loans, many banks used the money from the lending funds to remove TARP debt. The Fund eventually became a quasi-bailout for a large portion of banks.

Some critics believe the program was beneficial for large banks, and hurt small businesses, but for better or for worse, TARP impacted the U.S. economy in a powerful way.

Source: loans.org

Category: Credit

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