This paper analyses the main determinants for the dividend policies of a sample of European banks, with a special focus on the role of capital ratios. The paper draws on accounting, prudential and market data and on information on ownership structures. The capital ratios are assessed with reference to both the Common Equity Tier 1 (CET1) ratio and the excess capital held by banks on top of the minimum requirement set by the supervisory authorities (capital surplus).
Larger, more profitable and less leveraged banks, as well as those with higher CET1 ratios or capital surpluses, tend to pay higher dividends. Furthermore, the relationship between dividends and capital surplus is significantly stronger than the one between dividends and the CET1 ratio.