FACULTY RESEARCH
"We want them to maintain their capital and to recapitalize when they start to get into distress." - ALLEN BERGER
Bail-ins “can drive better incentives for the banks to maintain their capital, and that is what we really want them to do,” he said. “We do not want them to get into situations where they are going to have to be bailed in or bailed out. We want them to maintain their capital and to recapitalize when they start to get into distress.” Some banks are too big to fail, he pointed out. “If it gets to the distress point, you have to do something,” Berger said. “You cannot let them fail because it is too much of a disaster for the economy.”
TARP and other Bank Bailouts and Bail-Ins around the World: Connecting Wall Street, Main Street and the Financial System
ALLEN BERGER
Before and during the 2008 financial crisis, the investment banks behaved worse than the commercial banks, Berger said, partly because they believed they were too big to fail. “Then Bear Sterns got rescued in 2008, and I believe that Dick Fuld [of Lehman Brothers] assumed that it would get bailed out, so Lehman Brothers did not take the action necessary to keep themselves from failing,” he said. “They thought the institution was too big to fail. But it was not.”
While the forthcoming book does not focus exclusively on TARP as the authors had originally proposed, TARP was clearly successful, Berger said. He points out that the money given to the banks was all paid back. “Some banks paid, some banks didn’t, but the government got more money than they lent out,” he said. “That doesn’t mean that it is a good investment by itself, a good financial investment. It was a relatively low rate of return for a really risky investment.
“It should have been a higher rate of return for the risk. But that was not the point. The purpose of the program consisted of two main things: rescue the financial system and rescue the economy, and it did both.”
U N I V E R S I T Y O F S O U T H C ARO LI NA
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