Coauthor(s): Charles Calomiris.
As the debate over banking reform continues, the 800-pound gorilla in the room is the anemic market value of America's banks. The market-to-book value ratio of U.S. banks — an indicator of market perceptions of their future cash flow-generating potential — remains in the tank. This ratio averaged between 1.8 and 2.9 from 2000 until mid-2007, but then plunged to an average of between 0.9 and 1.3. This is especially remarkable when one considers that the financial crisis ended more than three years ago, and that the levels of bank lending, core deposits, non-interest income and non-interest expense (each relative to bank book values) are not nearly as far below their 2000–2006 values as bank stock prices are.
Source: American Banker