How Do Markets React to Banks’ Share Buybacks?

17 October 2025

By Pauline Avril, Maciej Grodzicki, Lukas Jürgensmeier and Alessandro Ricci

Share buybacks indicate that a bank’s management is confident in its financial soundness and future prospects. Also, buybacks are subject to approval from a bank’s supervisors. By reducing equity, share buybacks mechanically increase the return on equity, which investors may see as a positive sign. However, by decreasing capital buffers, buybacks can reduce a bank’s safety margin, potentially leading to adverse market reactions. That’s why share buybacks matter from both a supervisory and a financial stability perspective.

Why do banks buy back their own shares?

Share buybacks can be particularly appealing to investors when a bank’s price-to-book ratio is below 100%. This means the market considers the bank to be worth less than the total value of its net assets. In some cases, this could indicate that a bank is close to financial difficulty or that investors doubt that the bank’s assets are accurately valued. More often, however, a price-to-book ratio below 100% suggests that the bank cannot earn the cost of capital committed by investors. For investors, a buyback can be an opportunity to reallocate capital to other investments which offer a better trade-off between risk and expected returns.

However, when the price-to-book ratio is above 100%, the higher valuation indicates that the bank is generating returns above its cost of capital. In this case, shareholders are likely to benefit if the bank reinvests its earnings in the business rather than paying them out. In other words, buybacks are less appealing when the share price is above the book value.

To understand how markets react to banks’ share buybacks, we use an event study approach. Specifically, we look at market price movements – share prices and volatility – around the dates when share buybacks are announced and executed. This blog post summarises the main findings.

Share buybacks by euro area banks: key facts

Between 2020 and 2024, 21 large, publicly listed euro area banks included in the EURO STOXX Banks Index announced 75 buyback programmes. Through these programmes, the banks returned €61.6 billion of capital to shareholders. In this timeframe, on average, each bank that bought back its own shares distributed 8.35% of its Common Equity Tier 1 (CET1) capital as of the first quarter of 2020.

As profits increased over this period, banks steadily expanded the total size of the buyback programmes each year – measured in both absolute and relative terms (Chart 1, panels a) and b). The rise in the value of buybacks also came with more frequent buyback announcements, which increased each year until 2023 (panel c). Finally, the growing magnitude of buybacks has coincided with the increasing bank profitability, illustrated by the rising return on equity (panel d).

Chart 1­­

Overview of executed share buyback programmes and profitability by year

How did markets react to the announcement of banks’ buybacks?

Our analysis shows that when a bank announces a share buyback, its share price increases by 2.5% relative to the EURO STOXX Banks Index in the five trading days following the announcement (Chart 2, panel a). This measure, called the abnormal return, ensures we do not wrongly attribute changes affecting the share prices of the entire industry to an individual bank’s share buyback announcement. For context, the benchmark index yielded an annualised return of 8.7% over the same period. This highlights that share buybacks accounted for a significant part of total returns on bank shares.

As 43% of buyback announcements coincide with the release of quarterly earnings reports, i.e. earnings calls, our analysis distinguishes between these events. Therefore, we separated the effect of buyback announcements from earnings news. The findings indicate that cumulative abnormal returns follow the same pattern, whether or not the buyback coincides with earnings calls (Chart 2, panel b). This suggests that the effect of buybacks continues even when factoring in other market-relevant announcements.

We also found that the effect of buyback announcements depends on the bank’s price-to-book ratio (panel c). As we would expect, the positive impact of buyback announcements on share prices is stronger for banks trading below book value than for those with price-to-book ratios above 100%.

Chart 2

Buyback announcements – short-term effect on cumulative abnormal returns

Contrary to the effect on share prices, the impact of buyback announcements on implied share price volatility – a measure that quantifies the market’s expectations about the share’s future volatility – varies depending on whether these announcements coincide with earnings calls. As shown in Chart 3, panel b), stand-alone buyback announcements lead to a temporary increase in share price volatility. This reaction is plausible, because the announcement conveys new information for the market to digest.

However, when buyback announcements coincide with earnings calls, they are associated with a decline in share price volatility. This effect is consistent with the literature on earnings announcements,^[1] which shows a decrease in volatility immediately after an announcement.

Chart 3

Buyback announcements – short-term effect of buyback announcements on implied volatility vs. the day before the announcement

How did markets react to the execution of banks’ buybacks?

When companies deal in their own shares, it can distort share prices. To address this, the EU Market Abuse Regulation provides safeguards aimed at limiting the market impact of buyback trades.^[2] To avoid conflicts of interest, banks usually outsource the repurchase of shares to an independent broker or a separate business unit.

That is why we also examined whether executing a share buyback has an impact on the share’s price and volatility. Specifically, we evaluated whether there is a relationship between the number of shares repurchased (as a share of the daily trading volume) and (i) abnormal returns and (ii) implied volatility.

The sample used for this analysis differs from that used in the previous section. Given limited data accessibility, we use transaction-level data on the share buybacks carried out by four large euro area banks between 2020 and 2024. These data are publicly available on the banks’ websites.

Overall, we find no difference in abnormal returns between days with and without share buybacks (Chart 4, panel a). Furthermore, an econometric analysis confirms no statistically significant relationship between abnormal returns and the share of buyback trades in total trading activity. Together, these findings indicate that the execution of share buybacks does not systematically affect share prices.

Brokers responsible for executing buybacks are often rewarded for buying back shares at a lower average price. When a share’s price drops, brokers are incentivised to buy more shares. These purchases could explain why buyback execution is associated with lower share price volatility (Chart 4, panel b).

Chart 4

Distribution of abnormal returns and implied volatility on trading days with and without share buyback executions

Overall, the results of our study are largely consistent with the relevant literature.^[3] The positive market reaction to share buybacks is stronger for banks whose shares trade below book value. This supports the signalling hypothesis, according to which a buyback programme is a sign that management and regulators have greater confidence in the bank’s financial health. Our results also show that, for the sample of four large euro area banks, buyback trading activity does not have an undue impact on market prices – which is in line with the objectives of the Market Abuse Regulation.

The views expressed in each blog entry are those of the author(s) and do not necessarily represent the views of the European Central Bank and the Eurosystem.

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