Exiting TARP: Repayments by the Largest Financial Institutions, Special Inspector General for the Troubled Asset Relief Program, SIGTARP 11-005 September 29, 2011
“The lessons of the financial crisis and the events surrounding TARP repayments and exit demonstrate the importance of implementing strong capital requirements and holding institutions strictly accountable to those requirements. Some of the nations largest financial institutions had too little capital before the last crisis, a fact that not only contributed to the crisis itself but also necessitated the subsequent bailouts. Regulators leveraged TARP repayment requirements to improve the quality of capital held by the nations largest financial institutions in the wake of the financial crisis, but relaxed those requirements shortly after establishing them. Whether these institutions exited TARP with a strong and high quality capital structure sufficient to absorb their own losses and survive adverse market conditions without further affecting the broader financial system remains to be seen. There will always be tension between the protection of the greater financial system through robust capital requirements and the desire of individual financial
institutions to maximize profits and shareholder returns. While striking the right balance is no easy task, regulators must remain vigilant against institutional demands to relax capital requirements while taking on ever more risk.”
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