One of the biggest disappointments I have faced as a bank stock analyst in recent years has been the scarcity of bank chief executive officers who understand the role of equity capital costs in their decision-making.

Though virtually all bank CEOs understand the costs associated with funding sources that require a direct cash outlay, such as deposits, Federal Home Loan Bank borrowings, long-term debt, and preferred stock, many of these same managers have a more difficult time conceptualizing the economic costs associated with their common equity.

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