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Bank holding company dividends and repurchases during the financial crisis

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Abstract

Many large U.S. bank holding companies (BHCs) continued to pay dividends during the 2007-09 financial crisis, even as financial market conditions deteriorated, large losses accumulated, and emergency capital and liquidity were being provided by the official sector. In contrast, share repurchases by these BHCs dropped sharply in the early part of the crisis. Documenting this divergent behavior is one of the key contributions of this paper. The paper also examines the role that repurchases played in large BHCs? decisions to reduce or eliminate dividends. The key findings are that smaller BHCs in the sample with higher levels of repurchases before the financial crisis reduced dividends later and by less than BHCs with lower pre?crisis repurchases, suggesting that repurchases may have served as a cushion against cutting dividends. In contrast, there is only a weak relationship between pre?crisis repurchases and the timing and extent of dividend reductions for the larger BHCs, even though these BHCs were more likely overall to reduce or eliminate dividends during the crisis.

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  • Beverly Hirtle, 2014. "Bank holding company dividends and repurchases during the financial crisis," Staff Reports 666, Federal Reserve Bank of New York.
  • Handle: RePEc:fip:fednsr:666
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    Cited by:

    1. David Aikman & Jonathan Bridges & Anil Kashyap & Caspar Siegert, 2019. "Would Macroprudential Regulation Have Prevented the Last Crisis?," Journal of Economic Perspectives, American Economic Association, vol. 33(1), pages 107-130, Winter.
    2. Floyd, Eric & Li, Nan & Skinner, Douglas J., 2015. "Payout policy through the financial crisis: The growth of repurchases and the resilience of dividends," Journal of Financial Economics, Elsevier, vol. 118(2), pages 299-316.
    3. Ernest Gyapong & Ammad Ahmed & Collins G Ntim & Muhammad Nadeem, 2021. "Board gender diversity and dividend policy in Australian listed firms: the effect of ownership concentration," Asia Pacific Journal of Management, Springer, vol. 38(2), pages 603-643, June.
    4. Peter Debbaut & Huberto M. Ennis, 2014. "Large U.S. Bank Holding Companies During the 2007-09 Financial Crisis: An Overview of the Data," Economic Quarterly, Federal Reserve Bank of Richmond, issue 2Q, pages 113-157.
    5. Che Johari, Edie Erman & Chronopoulos, Dimitris K. & Scholtens, Bert & Sobiech, Anna L. & Wilson, John O.S., 2020. "Deposit insurance and bank dividend policy," Journal of Financial Stability, Elsevier, vol. 48(C).

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    More about this item

    Keywords

    bank capital; stock repurchases; bank dividends; financial crisis;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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