Discussion paper

DP15615 Low price-to-book ratios and bank dividend payout policies

Banks with a low price-to-book ratio have a greater propensity to pay out dividends. This propensity is especially marked for banks with a price-to-book ratio below a threshold of 0.7. As a sector, banks also tend to have higher dividend payout ratios than non-financial firms. We demonstrate these features using data for 271 advanced economy banks in 30 jurisdictions. Dividend payouts as a proportion of profits rise in a non-linear way as the price-to-book ratio falls below 0.7. In a hypothetical exercise with fixed balance sheet ratios, we find that a complete suspension of bank dividends in 2020 during the Covid-19 pandemic would have added, under different stress scenario, an additional US$ 0.8–1.1 trillion of bank lending capacity in our sample, equivalent to 1.1–1.6% of total GDP.


Gambacorta, L, T Oliviero and H Shin (2020), ‘DP15615 Low price-to-book ratios and bank dividend payout policies‘, CEPR Discussion Paper No. 15615. CEPR Press, Paris & London. https://cepr.org/publications/dp15615