Discussion Paper

Common Stock Repurchases during the Financial Crisis

Abstract: Large bank holding companies (BHCs) continued to pay dividends to their shareholders well after the onset of the recent financial crisis. Academics, industry analysts, and policymakers have noted that these payments reduced capital at these firms at a time when there was considerable uncertainty about the full extent of losses facing individual banks and the banking industry. But dividends are not the only means to return capital to shareholders; stock repurchases serve much the same function. In this post, I examine common stock repurchases by large BHCs during the financial crisis and show that they behaved very differently from common stock dividends during the same period. While dividends remained relatively constant through late 2008, common stock repurchases dropped quickly after the beginning of the financial crisis, consistent with their historically tighter sensitivity to current performance and financial conditions.

Keywords: Stock Repurchases; Financial Crisis; Bank Dividends; Bank Capital;

JEL Classification: G2;

Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Liberty Street Economics

Publication Date: 2013-07-10

Number: 20130710