Troubled Asset Relief Program

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What Is Troubled Asset Relief Program?

The Troubled Asset Relief Program (TARP) was a $700 billion U.S. government program created by the Emergency Economic Stabilization Act of 2008 and signed into law in October 2008. It authorized the Treasury Department to purchase troubled assets from financial institutions and, as the plan evolved, to inject capital directly into banks by buying ownership stakes. The goal was to stabilize a banking system frozen by mortgage-related losses and restore the flow of credit. TARP funds ultimately supported major banks such as Citigroup, insurer AIG, and even automakers General Motors and Chrysler, which received bailout loans and underwent restructured bankruptcies in 2009.

Why It Matters

TARP matters as one of the largest and most controversial financial rescues in U.S. history. When the House initially rejected the bill on September 29, 2008, the Dow Jones Industrial Average fell nearly 778 points, its largest point drop at the time, underscoring how much markets depended on government action. Supporters credit TARP with helping halt the panic; critics saw it as a bailout of Wall Street that raised concerns about moral hazard. According to Treasury accounting, TARP's bank investments were ultimately repaid with an overall profit to taxpayers, though the program remains a touchstone in debates over rescuing large financial firms.