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Definition: TARP (Troubled Asset Relief Program)
TARP is an acronym for US Government’s Troubled Asset Relief Program.
It was created by emergency stabilization act passed in October 2008 in an attempt to bail out the economy from the financial crisis of 2007. The act granted the Secretary of the Treasury authority to either purchase or insure up to $700 billion in troubled assets owned by financial institutions. The aim was to buy troubled mortgage based securities from financial institutions and restore the liquidity in money market. Out of $700 million, $350 billion were immediately released to the treasury. Congress had the right to approve or disprove next $350 billion.
After sub-prime crisis, asset (mostly subprime) backed securities lost their values sharply and financial institutions owing these securities started suffering from unprecedented losses. Investors were not willing to put their money into financial markets due to rise in of toxic assets owned by firms. Hence, US government stepped in with TARP to restore the confidence and functioning in the financial markets.
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