If one wished to isolate a single statistic that summed up the elemental health of any bank, it would not be an accounting magnitude like the return on equity or the return on assets.

Rather, it would be a market-driven measure that foreshadows changes in underlying solvency. Such a measure would set forth the probability within a given period (say, one year or five years) that the market value of the bank's assets will decline to the level where that value just equals the book total of its liabilities, which is, of course, the point of default.

Limited Time Offer

Save $400 off your subscription. Special offer ends April 30, 2017.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.