How Do Banks Build Equity Capital?

Lily Gordon and Beverly Hirtle ()

Economic Policy Review, 2026, vol. 32, issue 1, 48 pages

Abstract: This article examines the evolution of equity capital in the U.S. banking industry over the past thirty-five years. Earnings are the major driver of increases in equity capital in the banking industry. While common stock issuance is frequent, amounts issued are generally small and do not contribute meaningfully to equity capital growth in most cases. Common stock dividends and repurchases are significant drains on equity capital. It is not uncommon for banks to pay out more than they earn, reflecting both capital planning motivations and negative shocks to earnings. It is also common for banks to both issue new common stock and make repurchases in the same year, with these offsetting actions related to employee stock-based compensation.

Keywords: bank capital; equity capital; bank payouts; dividends and repurchases (search for similar items in EconPapers)
JEL-codes: G21 G28 G35 (search for similar items in EconPapers)
Date: 2026
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DOI: 10.59576/epr.32.1.1-48

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