FIG Interview Prep Exam With 100%
Correct Answers
How do you value a commercial bank? - CORRECT ANSWER✔✔-Precedent transactions and
public comps (focus on total assets, loans rather than revenue or EBITDA, use multiples like P/E,
P/BV)
-Dividend Discount model
Dividend Discount Model - CORRECT ANSWER✔✔-project dividends based on regulatory capital
requirements, total A, NI and discount them to PV using Re
-Calc terminal value using P/TBV multiple or Gordon Growth Method
P/BV and P/TBVfor bank - CORRECT ANSWER✔✔(ROE-NI growth) / (Re - NI growth)
(ROTCE-NI to common growth) / (Re - NI to common growth)
-more useful if bank has stabilized
Regulatory Capital - CORRECT ANSWER✔✔the amount of capital that a FIG must hold in case of
unexpected loss
-on BS, decrease this on L&E side when write down a loan
Common Equity Tier 1 - CORRECT ANSWER✔✔=Common SE - Goodwill - Other intangibles +/-
other adjs.
-most basic form of regulatory cap.
CET1 Ratio - CORRECT ANSWER✔✔=CET1 / Risk-Weighted Assets
-calc risk-weighted Assets: bank multiplies "risk weights" by all its on-BS and off-BS Assets and
adds up everything
, Solvency Capital Requirement (SCR) Coverage Ratio - CORRECT ANSWER✔✔=available cap. /
required cap.
-key ratio for insurance firms
-must always be above 100%
-available cap = tangle common equity
-required cap = expected negative impact on Own Funds of a 1-in-200 year event
Minimum Capital Requirement (MCR) Ratio - CORRECT ANSWER✔✔-similar to SCR Coverage
Ratio, but set to a 25-45% minimum threshold rather than 100%
Commercial banks difference from normal co.s - CORRECT ANSWER✔✔1)Balance sheet first
2)Equity Val only can't separate operating and finance activities
3)Dividend Discount Model
4)Regulations and capital
5)Different valuation multiples (P/BV, P/TBV, P/E)
Insurance Companies different from most companies - CORRECT ANSWER✔✔1)Non-interest rev
tends to be higher than banks
2)Use statutory accounting
3)Valuation similar to banks, but Embedded Value is important for life insurance
4)Regulatory cap. requirements
BS for Bank - CORRECT ANSWER✔✔-loans on A side and deposits on L&E side are key drivers
-new items like allowance for loan losses (contra-asset account)
Correct Answers
How do you value a commercial bank? - CORRECT ANSWER✔✔-Precedent transactions and
public comps (focus on total assets, loans rather than revenue or EBITDA, use multiples like P/E,
P/BV)
-Dividend Discount model
Dividend Discount Model - CORRECT ANSWER✔✔-project dividends based on regulatory capital
requirements, total A, NI and discount them to PV using Re
-Calc terminal value using P/TBV multiple or Gordon Growth Method
P/BV and P/TBVfor bank - CORRECT ANSWER✔✔(ROE-NI growth) / (Re - NI growth)
(ROTCE-NI to common growth) / (Re - NI to common growth)
-more useful if bank has stabilized
Regulatory Capital - CORRECT ANSWER✔✔the amount of capital that a FIG must hold in case of
unexpected loss
-on BS, decrease this on L&E side when write down a loan
Common Equity Tier 1 - CORRECT ANSWER✔✔=Common SE - Goodwill - Other intangibles +/-
other adjs.
-most basic form of regulatory cap.
CET1 Ratio - CORRECT ANSWER✔✔=CET1 / Risk-Weighted Assets
-calc risk-weighted Assets: bank multiplies "risk weights" by all its on-BS and off-BS Assets and
adds up everything
, Solvency Capital Requirement (SCR) Coverage Ratio - CORRECT ANSWER✔✔=available cap. /
required cap.
-key ratio for insurance firms
-must always be above 100%
-available cap = tangle common equity
-required cap = expected negative impact on Own Funds of a 1-in-200 year event
Minimum Capital Requirement (MCR) Ratio - CORRECT ANSWER✔✔-similar to SCR Coverage
Ratio, but set to a 25-45% minimum threshold rather than 100%
Commercial banks difference from normal co.s - CORRECT ANSWER✔✔1)Balance sheet first
2)Equity Val only can't separate operating and finance activities
3)Dividend Discount Model
4)Regulations and capital
5)Different valuation multiples (P/BV, P/TBV, P/E)
Insurance Companies different from most companies - CORRECT ANSWER✔✔1)Non-interest rev
tends to be higher than banks
2)Use statutory accounting
3)Valuation similar to banks, but Embedded Value is important for life insurance
4)Regulatory cap. requirements
BS for Bank - CORRECT ANSWER✔✔-loans on A side and deposits on L&E side are key drivers
-new items like allowance for loan losses (contra-asset account)
