The Troubled Asset Relief Program, or TARP, was a U.S. economic program designed to ward off the nation’s mortgage and financial crisis, known as the Great Recession. Signed on October 3, 2008, by President George W. Bush, TARP allowed the Department of the Treasury to pump money into failing banks and other businesses by purchasing assets and equity. The idea was to stabilize the market, relieve consumer debt and bolster the auto industry. Referred to by some as a “bank bailout,” TARP sparked both praise and criticism.

Why TARP Was Created

In 2008, Americans struggled under the Great Recession, the worst economic calamity since the Great Depression.

While no single event is to blame for the financial crisis, many experts believe lax credit requirements for low-income citizens played an extensive role in setting up a subprime mortgage disaster.

During this time, the economic situation was grim. The housing bubble that had been steadily growing for years had burst, leading to a massive number of foreclosures.

The banking industry was on the verge of failure, with some of the largest banks collapsing. The auto industry and other sectors also suffered substantial losses.

The National Bureau of Economic Research declared that a recession had started in the United States in December 2007.

Stocks and investments plummeted worldwide throughout the recession. On September 29, 2008, the Dow Jones Industrial Average fell more than 777 points—the largest drop in any single day in history.

As investors, politicians and American citizens panicked, government officials discussed and debated ways to slow the economic chaos and restore financial stability.

TARP to The Rescue

In October 2008, the Emergency Economic Stabilization Act of 2008 was signed into law by President George W. Bush. TARP was born out of this act, which was initially proposed by Treasury Secretary Henry Paulson.

The goal of TARP was to mend the financial situation of banks, strengthen overall market stability, improve the prospects of the U.S. auto industry and support foreclosure prevention programs.

TARP funds were used to purchase equity in failing businesses and financial institutions. The Treasury Department also utilized TARP money to buy stock or make loans to other groups and businesses. In all, TARP created 13 different programs.

The program was originally authorized to spend $700 billion, but that amount was reduced to $475 billion when another bill, the Dodd-Frank Act, was signed into law in 2010.

Capital Repurchase Program

On October 14, 2008, the Treasury Department announced that it would use up to $250 billion of TARP funds to create the Capital Repurchase Program.

Under this initiative, the U.S. government bought preferred stock in eight major banks, including:

  • Bank of America/Merrill Lynch
  • Bank of New York Mellon
  • Citigroup
  • Goldman Sachs
  • P. Morgan
  • Wells Fargo
  • Morgan Stanley
  • State Street

With the Capital Purchase Program, specific institutions were permitted to sell equity interests to the government in amounts equal to 1 percent to 3 percent of the business’s risk-weighted assets.

TARP Funds

The U.S. Department of the Treasury divided TARP funds into five major areas, which included:

  • $250 billion was dedicated to programs that stabilized banks ($5 billion of this was canceled)
  • $82 billion was set aside to bolster the auto industry ($2 billion of this was canceled)
  • $70 billion was to be used to support the American International Group (AIG) ($2 billion of this was canceled)
  • $46 billion was committed to help Americans avoid foreclosure
  • $27 billion was dedicated to programs to restart credit markets

TARP Bonuses

One major criticism of TARP centered around executive compensation and the bonuses that were paid to top executives at a time when their companies required bailout funds.

Critics argued that these “TARP bonuses” should not have been paid to businesses that were using taxpayer money to recover financially. Companies argued that they needed bonuses to attract and keep talented employees.

In March 2008, the House approved a bill that put a 90 percent tax on bonuses earned during 2008 for banks that received $5 billion or more of TARP funds.

The End of TARP

TARP effectively expired on October 3, 2010—two full years after its inception. After this date, funds could no longer be extended.

In 2014, the U.S. government reported a $15.3 billion profit from TARP. But, some financial experts say inflation and other factors, such as how the funds were paid back, make the return profit on TARP less significant than it sounds.

Just how much money was paid back is difficult to track. The government dedicated bailout funds to 975 recipients who received a total of $439 billion. Estimates show about $390 billion has been returned.

Did TARP Work?

Supporters of TARP believe the program helped the United States bounce back from an all-out economic catastrophe.

According to the Treasury, the government’s investments in TARP earned more than $11 billion for taxpayers. The government also contends that TARP saved more than 1 million jobs and helped stabilize banks, the auto industry and other sectors of business.

As with most government programs, TARP also sparked criticism. Some opponents believe too much money was pumped into the plan and that funds weren’t used wisely. Critics also say the program gave banks a free pass for their financial mismanagement.

The successes and failures of TARP will likely be analyzed for years to come, as financial experts continue to examine the most effective ways to recover from a financial crisis like the looming one spurred by business closures and rising unemployment related to the COVID-19 pandemic.


TARP Programs, U.S. Department of the Treasury.
Troubled-Asset Relief Program—TARP, Investopedia.
Financial Crisis, Investopedia.
The Troubled-Asset Relief Program—Five Years Later, Federal Reserve Bank of St. Louis.

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