Proceedings of the New York State Economics Association


Literature vs. Reality: Bank Valuation Methods Used by Equity Analysts

Jose Luis Velasco and K. Matthew Wong

vol. 6, October 2013, p. 221-230


The idiosyncratic attributes of banks call for the use of valuation methods that are adapted specifically for the peculiar characteristics of the banking business and the special roles played by its leverage and capital constrains. This paper discusses the common valuation methods advocated in the academic literature and compare them against the "real world" methodologies. The study reviews 171 research reports on the valuation of some of the largest European banks in 2011. The results of the research indicate, for the scope of the sample, that there is a disconnect between the financial literature and the real world. Equity analyst, in general, use valuation models that are more closely adapted to the specific characteristics of banks and not always follow what the financial literature proposes as the core methods for bank valuation. This finding suggests that there is ample room for further research to re-evaluate the banking valuation methodology in the literature.


suggested citation:

Jose Luis Velasco and K. Matthew Wong. "Literature vs. Reality: Bank Valuation Methods Used by Equity Analysts." Proceedings of the New York State Economics Association. vol. 6, October 2013, p. 221-230

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