Financial Institutions (FIG)
By SuperdayReps · Wharton MBA · ex-Greenhill · investment banking interview coaching
17 min read · updated October 10, 2026
A FIG interview is mostly the standard first round. The three statements, a DCF, terminal value, WACC, enterprise value against equity value, and the valuation methods all still come up, and they are covered in the range of technicals and the lessons under it.
What is different about FIG is that the sector layer does not sit on top of the standard material. It breaks some of it. The DCF you learned does not work on a bank. Enterprise value does not work on a bank. EBITDA means nothing for a bank. An interviewer in a FIG group knows you have learned the generalist versions, and the sector questions are mostly a test of whether you know where they stop working and why.
The good news is that one idea explains nearly all of it. Learn that idea properly and most FIG questions answer themselves.
The one idea: a bank's debt is its business
A manufacturer borrows money to fund a factory, and the factory makes the profit. Interest is a financing cost that sits below operating income, which is why you can value the operations separately from how they are funded. That separation is the whole basis of enterprise value and the unlevered DCF.
A commercial bank does not work that way. It takes in deposits and borrows, then lends that money out at a higher rate. The money it owes is not funding for the business. It is the raw material of the business, the way steel is for a car maker.
So on a bank's income statement, interest income is revenue and interest expense is the cost of goods sold. The gap between them is net interest income, and as a share of the assets earning it, that gap is the net interest margin. Everything a bank does starts there.
| Line on a bank's income statement | What it really is |
|---|---|
| Interest income on loans and securities | Revenue |
| Interest expense on deposits and borrowings | Cost of goods sold |
| Net interest income | Gross profit |
| Provision for credit losses | The expected cost of loans that will not be repaid |
| Non-interest income (fees, cards, trading, wealth) | A second revenue line |
| Non-interest expense (people, branches, technology) | Operating expenses |
| Net income | The profit line the equity is valued on |
Almost every FIG answer follows from this. Because debt is the business, you cannot separate operations from financing. So enterprise value does not apply, EBITDA does not apply, and the unlevered DCF does not apply. You value the equity directly, with equity multiples, equity cash flows, and the cost of equity. Say the reason, not just the rule, and the follow-up questions get easy.
The balance sheet tells the same story from the other side. On the asset side, loans are the biggest line, then investment securities and cash. On the liability side, deposits are the biggest line, then borrowings. Equity is a thin slice, often around a tenth of assets, which is why a bank is far more leveraged than any operating company and why regulators care so much about that slice.
It also explains why a bank model is built differently. With an operating company you start from revenue. With a bank you start from the balance sheet, because the size of the loan book and the deposit base decides the interest earned and paid. You project loans and deposits, apply yields and funding costs to get net interest income, add fees, subtract costs and provisions, and land on net income. Then capital rules decide how much of that income the bank can hand back to shareholders.
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Frequently asked
- What questions do FIG investment banking interviews ask?
- The standard first round plus a sector layer. The sector layer is how a bank differs from a normal company, why a bank is valued on equity value with P/E, P/BV and P/TBV rather than enterprise value and EBITDA, why a dividend discount model replaces the unlevered DCF, what regulatory capital and the CET1 ratio are, how a loan loss provision moves through the three statements, and for insurers, premiums and the combined ratio.
- Why can't you use enterprise value or an unlevered DCF for a bank?
- Because a bank's debt is not financing, it is the business. Deposits and borrowings are the raw material a bank lends out, and interest income and interest expense are its revenue and its cost of goods. There is no operating line above interest to separate from financing, so you cannot strip debt out to get an enterprise value. You value the equity directly, with equity multiples, a dividend discount model, and the cost of equity as the discount rate.
- Why do banks trade on price to tangible book value?
- Because a bank's balance sheet is mostly financial assets carried close to what they are worth, so book value is a meaningful measure of what shareholders own. Tangible book strips out goodwill and intangibles, which cannot absorb a loss and which regulators exclude from capital. The multiple then tracks return on tangible equity: a bank that earns exactly its cost of equity should trade near 1.0x tangible book, and one that earns more should trade above it.
- What is the combined ratio for an insurance company?
- The loss ratio plus the expense ratio, so claims and the cost of writing policies, both as a share of premiums. Below 100 percent the insurer makes money on underwriting alone. Above 100 percent it loses money on underwriting and depends on investment income from the premiums it holds before claims are paid.
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