Aswath Damodaran (Stern School of Business, NYU) reflects on how our shaken change in faith in both bankers and regulators prevents us from assuming “that having regulatory rules on risk taking will result in sensible risk taking at individual banks.”
“So, what do we do now?” the professor asks in his recent blog post “Breach of Trust: Bank Valuation after the Banking Crisis”. “In intrinsic valuation, we have two choices.” One is to use a modified version of the dividend discount model, and the other, more complicated choice “requires knowledge of regulatory capital requirements and involves several steps.”
Bank valuation is a hot topic given the current economic environment. Look for an article on valuing unprofitable banks in the next issue of Business Valuation Update.
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