From the first quarter of 2016 through the first quarter this year, the four biggest U.S. banks gave away $145 billion in net share buybacks and dividends, while the 10 biggest domestically owned regional banks gave away $40 billion, the two biggest investment banks gave away $28 billion and the three biggest trust banks gave away $11 billion.

All tallied, that's $224 billion in bank capital given away over nine quarters.

If the banks had kept that $224 billion, it could have supported the addition of $2.8 trillion in bank assets, assuming that money was leveraged 12.5 times. Further, a little more than half of it, around $1.5 trillion, could have been used to make new loans.

These loans could have supported the building of infrastructure in the United States. Or, the money could have been used to provide the housing needed to meet the growing demand among the surging 25-to-44-year-old population. The loans could have been used to support the expansion of small businesses. These loans could have increased the money supply and the growth in gross national product.

Bank managements argue that this type of reasoning is fallacious. They say that stockholders can make better use of the money than the banks can. They argue that they have excess capital. Moreover, they believe that the prices of bank stocks will rise faster if they pay out all of their earnings to shareholders.

Let’s look at these arguments, starting with the last one first.

1. Stock Prices

In 2017, big banks paid out more money to shareholders than ever before ($100 billion). The thought was that this would increase bank stock prices in 2018, but that hasn't happened. Year-to-date in 2018, shares of the four biggest banks have fallen 6.5 percent; shares of the 10 big regionals are down 3.5 percent; the two investment banks have dropped 11.9 percent and the three trust banks are down 1.6 percent. Furthermore, virtually every one of these stocks has fallen almost every day since the big banks announced their next round of record payouts 10 days ago.

2. Excess Capital

Here’s another surprise: There is no such concept as excess capital in a bank. The term is derived from the government bureaucracy. If a bank has more capital than is needed to protect its safety and soundness, someone decided that the additional capital is "excess capital." From an economic sense, it is not excess. Every dime of that money would be invested in obtaining additional profit. If the money is given away, the profits associated with those funds are lost, as is the ability to leverage the bank's balance sheet. The secular earnings growth rate of the bank declines. These are simple facts.

3. Use of Funds

In making these big shareholder payouts, the boards of directors of the banks are saying shareholders have a greater opportunity to make use of the additional bank capital than the banks do.

I am not sure how one calculates this. Certainly, the drop in the banks' share prices after last year's payouts would indicate it was not the highest use of these funds. Additionally, even though interest rates are high and going higher, they are still well below bank returns on equity. Plus, consumer spending seems to be driven more by having a job and an increased paycheck than obtaining a dividend from a bank stock – one that is declining in value.

Bank boards seem to be arguing that they do not know how to get a higher return on the funds they hold, and that they are stymied when it comes to how to increase bank revenue. So they are willing to harm the bank’s future growth rate by giving away the bank’s money rather than developing innovative uses for the funds that they hold.

If the directors are that confused as to how to grow the institution they monitor, then it is time for them to leave. It is time for activist investors to replace them.

While the big banks were giving away $224 billion, 298 of America’s small regional and community banks added $18 billion in capital to their balance sheets. Unlike their larger counterparts, these banks were growing their balance sheets and loan portfolios. Plus, in 2018, their stock prices were rising. Core regional bank stocks are up 7.7 percent year-to-date. Shares of small regionals are up 0.2 percent, community banks are up 5.0 percent and small community banks are up 8.0 percent.

These companies are not stuck with a lack of ideas or innovation.