Why does enterprise-value logic fail for banks — and how do you actually value one?

For a bank, debt is not financing but raw material: deposits and wholesale funding are the inputs the business earns its spread on, so separating 'operating' from 'financing' — the entire premise of enterprise value and EV/EBITDA — collapses. Interest is the core operating line, and capex-like concepts barely exist. You therefore value the equity directly: price-to-book and price-to-earnings against peers, a dividend discount model, or residual income (excess of ROE over cost of equity capitalized onto book value). The controlling relationship is the value triangle: P/B exceeds 1.0 exactly when sustainable ROE exceeds the cost of equity, and the spread times growth determines how far. Regulation is the constraint layer — CET1 requirements cap leverage and distributions, so any dividend-based valuation must respect the capital plan. Asset quality diligence (NPL coverage, stage 2/3 migration) is the banking equivalent of QoE: overstated book value corrupts every multiple built on it.