Mea culpa: Higher capital requirements = Higher bank dividends

Mea culpa: Higher capital requirements = Higher bank dividends. In a recent blog post, I suggested that one of the reasons the government would be reluctant to lift capital requirements substantially was due to concerns that banks would cut back their dividends, which amounted to $20 billion in the past year alone. Well, I was wrong on the 'negative' link between bank capital and dividends (thanks to Charles Hyde from Macquarie University for pointing this out). Empirical evidence confirms that safer banks globally - those with greater loss absorbing capital - actually pay out higher dividends than their more leveraged counterparts. Despite having lower capital ratios than their global peers, Australia's major banks pay higher dividends, which I attribute in part to dividend imputation. (VIEW LINK)