However, new analysis reveals the initiative may not be going to plan. According to data compiled by the Wall Street Journal, many of the country’s largest banks have cut back on lending in the fourth quarter after receiving TARP funds.
A total of 10 out of the top 13 largest banks receiving a capital cash injection curbed lending by approximately 1.4 percent during the last three months of 2008. Not all TARP recipients were included in the findings, as some banks have not yet reported results for that period.
The figures have caused some to question the effectiveness of TARP – and others to deem it a letdown.
“It has failed. Basically, we have dropped a huge amount of money
and we have nothing to show for what we actually wanted to happen,” Duke University finance professor Campbell Harvey told the news provider.
Part of the problem is that banks are still anticipating a large number of defaults in the coming months, on everything from home loans to credit cards.
For example, Fitch Ratings figures from December show that credit card charge-offs rose by 31 percent to reach a four-year high of 6.84 percent. The ratings agency has forecast this proportion could reach 8 percent by the end of the year.
Meanwhile, some experts are predicting the country could see as many as 8 million foreclosures over the next four years.
These predictions may be what is prompting financial institutions to use TARP funds to shore up their balance sheets and protect against risk, instead of making new loans.
Similar Posts:
Recent Comments