Bank Valuation - Asset Business

Overview

The Two Valuation model of bank valuation splits a bank into the sum of two compnents. The asset business views a portion of the bank as being similar to a hedge fund. That is, it holds a set of assets (loans) which are funded through a set of liabilities (in this case, deposits). The valuation of this portion of the bank can be calculated using the techniques of Fund Valuation

Market Values

The standard approach given above requires that there exist market values for the assets (loans) and liabilities (deposits) of the bank. It can argued that the market value approach cannot be applied because typically there are not market values for these assets.

On the flip side, the model could proceed by calculating model provided market values, that is, what the market would value the assets at given their risk.