A Tale of Two Bailouts and Their Impact on Subprime Consumer Debt

Abstract We address how different restrictions or “strings” attached to the usage of government aid distributed through banks during crises affect subprime consumer debt. Leveraging quasi‐natural experiments, we compare Troubled Asset Relief Program (TARP), characterized by limits on executive and shareholder compensation but no strings attached to lending with the highly restrictive Paycheck Protection Program (PPP) loan requirements but no limits on executives and shareholders. We evaluate the programs’ impacts on millions of consumer debt observations from the Consumer Credit Panel. Results indicate that the PPP funds significantly reduced debt for subprime borrowers, primarily through income shock mechanisms, compared to additional debt through credit shocks under TARP.