The ABCs of bank PBRs

Price-to-book ratios have been unusually low for many banks since the Great Financial Crisis. Ratios below one, in particular, have been seen as reflecting market concerns about banks' health and profitability as well as the need for shifts in business models. But what drives these valuations globally? What explains consistently low levels for some banks and jurisdictions? This special feature proposes an empirical valuation methodology based on the intangible value attached to bank assets and liabilities. Our model fits the data well across time and banks, suggesting that measures targeting traditional drivers of profitability, such as the proactive management of non-performing loans, remain essential in enhancing bank valuations.