We empirically examine the Capital Purchase Program (CPP) used by the US government to bailout distressed banks. We find strong evidence that a feature of the CPP – the government’s ability toappoint independent directors on the board of an assisted bank that missed six dividend payments tothe Treasury – had a significant effect on bank behavior. Banks were averse to these appointments – theempirical distribution of missed payments exhibits a sharp discontinuity at five. Director appointmentsby the Treasury led to improved bank performance and lower CEO pay. Political connections did notaffect appointment decisions.

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