Definition
TARP, the Troubled Asset Relief Program, was a US government initiative enacted in October 2008 at the height of the global financial crisis. Authorized by the Emergency Economic Stabilization Act, it allowed the Treasury to spend up to several hundred billion dollars to stabilize the financial system.
Although it was named for buying troubled mortgage-related assets, the program quickly pivoted to injecting capital directly into banks by purchasing their preferred stock — a faster way to shore up confidence.
Why it matters
How it works
By taking equity stakes in major banks, the Treasury gave them an immediate cushion of capital, reassuring lenders and depositors that those institutions would not fail. The program also extended support to the auto industry, AIG, and credit markets for consumers and small businesses.
Because banks were required to pay dividends on the government's stock and later bought back the shares, most TARP funds were returned. The program is widely credited with arresting the panic, while critics argue it shielded reckless firms and deepened the too-big-to-fail problem.