Calculating net worth of a bank is an essential valuation process that assesses its financial health. The concept refers to the total value of an institution’s assets minus its liabilities. For instance, a bank with 25 billion in assets and 15 billion in liabilities has a net worth of 10 billion.
Understanding a bank’s net worth is crucial for investors, depositors, and policymakers. It indicates a bank’s ability to withstand financial stress and provides insights into its overall stability. Historically, the subprime mortgage crisis of 2008 highlighted the importance of tracking net worth to prevent systemic financial failures.