CHAPTER 7
Economic and Strategic Drivers of Bank Valuation
DETERMINANTS OF FRANCHISE VALUE, ECONOMIES OF SCALE AND SCOPE, AND INFLATION AND BANK VALUATION
Previous chapters introduced the fundamental bank valuation formula. It applies to the on-balance-sheet business of banks. (The valuation of fee-based activities is discussed in Chapter 8.) It has been shown that the present value of dividends can be decomposed into a series of five terms:
1. The liquidation value
2. The franchise value of deposits
3. The franchise value of loans
4. The present value of operating expenses
5. A Modigliani-Miller tax penalty ...
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