The back-of-envelope maths and due-diligence checks professionals run

• Assets: mostly loans the bank has made (money owed to it).
• Earning assets: the subset of assets that actually generate interest (loans, bonds, cash at the central bank). Excludes things like buildings.

Scale check, all figures estimates as of early 2026: US commercial bank total assets sit around $24 trillion (see the Federal Reserve's H.8 release for the live number). The euro area banking sector is broadly comparable in size. The US market is dominated by a handful of giants (JPMorgan Chase, Bank of America, Citigroup, Wells Fargo); Europe is more fragmented across national champions (BNP Paribas, Santander, Deutsche Bank, ING, UniCredit).

Calculation 1: net interest margin (NIM)

NIM tells you how much a bank earns on its lending after paying for its funding, as a percentage of the assets doing the work.

Formula:

NIM = Net Interest Income / Average Earning Assets

Worked example. A mid-size bank reports:

• Net interest income: $2.0 billion
• Average earning assets: $80 billion

NIM = 2.0 / 80 = 2.5%

So the bank nets 2.5 cents of interest for every dollar of earning assets.

Benchmark: US banks have run roughly 2.5% to 3.5% NIM in recent years (estimate). European banks typically sit lower, often 1.2% to 2.0%, partly a legacy of years of near-zero and negative rates that compressed spreads. A NIM well above peers is a flag: it might mean excellent deposit franchise, or it might mean the bank is lending to riskier borrowers at higher rates.

Calculation 2: return on tangible equity (ROTE)

Shareholders care about return on the money they put in. Return on equity (ROE) measures profit against total equity. But professionals prefer ROTE, which strips out intangibles like goodwill (the premium paid in past acquisitions that isn't a real, sellable asset). ROTE shows the return on the hard capital that can actually absorb losses.

Formula:

ROTE = Net Profit / Average Tangible Equity

where Tangible Equity = Total Equity minus Goodwill and Intangibles.

Worked example. A bank reports:

• Net profit: $3.0 billion
• Total equity: $30 billion
• Goodwill and intangibles: $5 billion

Tangible equity = 30 minus 5 = $25 billion.

ROTE = 3.0 / 25 = 12%

Benchmark: Investors typically treat 10% to 12% ROTE as the rough dividing line between value-creating and value-destroying, because that's around a bank's cost of equity. Leading US banks have posted mid-teens ROTE recently; many large European banks have finally pushed above 12% after a lost decade, helped by higher rates (all estimates, 2025 reporting).

Calculation 3: capital headroom from rwas

Regulators force banks to hold capital as a shock absorber. The key ratio is the CET1 ratio (Common Equity Tier 1: the highest-quality capital, mostly shares plus retained earnings, divided by risk-weighted assets).

RWAs (risk-weighted assets) are the bank's assets adjusted for riskiness. A government bond might carry a 0% weight; an unsecured corporate loan close to 100%. So $100 of mortgages might count as only $35 of RWAs.

Formula:

CET1 ratio = CET1 Capital / Risk-Weighted Assets

Worked example, calculating headroom. A bank reports:

• CET1 capital: $60 billion
• RWAs: $400 billion

CET1 ratio = 60 / 400 = 15%

Say its regulatory minimum plus buffers requires 11%. Its headroom is 4 percentage points.

How much loss could that absorb? 4% x $400bn RWAs = $16 billion before it breaches the requirement. That single number tells you how much stress the bank can eat.

Benchmark: Large US and European banks typically run CET1 ratios of 12% to 15% (estimate, 2025). The rules come from the Basel framework (international standards set by the Basel Committee), implemented in the US by the Federal Reserve, OCC and FDIC, and in Europe via the Capital Requirements Regulation (CRR) overseen by the European Central Bank and European Banking Authority (EBA). The final Basel III rules ("Basel III Endgame" in the US, "Basel 3.1" in the UK) are phasing in through the mid-2020s and raise RWA requirements for some banks.

The fintech twist

Fintechs (Revolut, Chime, Nubank, Wise and similar) break some of these habits. Many are not full banks: they operate on a licence held by a partner bank, or an e-money licence that legally forbids them from lending customer deposits. For those, NIM is meaningless; look instead at revenue per active customer and interchange (the fee merchants pay on card transactions).

Where a fintech *does* hold a full banking licence (Nubank, Revolut in some markets), the same NIM, ROTE and CET1 maths apply. Nubank, for instance, reports real banking metrics because it is a real bank in Brazil and Mexico.

The due-diligence checklist

Numbers can be arranged to flatter. Run these checks before trusting any bank or fintech's headline figures.

1. Is the profit real, or one-off?

Strip out gains from asset sales, legal settlements, and tax quirks. Ask: would this ROTE repeat next year? A 15% ROTE inflated by a one-time property sale is not a 15% business.

2. What's hiding in loan quality?

Check the NPL ratio (non-performing loans: loans where the borrower has stopped paying, as a percentage of total loans) and the coverage ratio (provisions set aside against those bad loans). Rising NPLs with flat provisions is a classic warning sign. Euro area NPL ratios have been low recently, around 2% (estimate), but averages hide concentration.

3. Does the funding look stable?

Deposits are sticky and cheap; wholesale market funding can vanish in a crisis. The 2023 collapse of Silicon Valley Bank was a funding-and-duration failure: concentrated, uninsured deposits fled in hours. Check the deposit mix and how much is insured (under $250,000 FDIC cover in the US, €100,000 deposit guarantee in the EU).

4. Is the capital ratio flattered by low risk-weights?

Two banks can both show 14% CET1 but one uses aggressive internal models to shrink its RWAs. Compare the leverage ratio (capital against total unweighted assets) as a sanity check: it ignores risk-weighting entirely.

5. For fintechs: is it a bank or a wrapper?

Read the licence. Where are deposits actually held? Who bears credit risk? A "neobank" running on a partner's licence has different risks (and protections) than a chartered bank.

6. Who audits it, and does it file on time?

Late filings, auditor changes, and restated results are red flags. For US banks, cross-check against FDIC and Fed call reports; for EU banks, the EBA risk dashboard publishes comparable data.

Key Takeaways

• Three calculations cover most banks: NIM (spread on lending), ROTE (return on hard capital), and CET1 headroom (loss-absorbing buffer). Each needs only two or three numbers.
• Anchor to benchmarks: roughly 2.5% to 3.5% US NIM (lower in Europe), 10% to 12% ROTE as the value line, and 12% to 15% CET1 for large banks. All estimates as of early 2026.
• Convert ratios into dollars: "4% headroom on $400bn RWAs" means $16bn of loss capacity. That framing beats a percentage every time.
• Fintechs need different lenses: check whether it is a real bank or a licence wrapper before applying NIM at all.
• Pressure-test before you trust: one-off profits, rising NPLs, unstable funding, and flattering risk-weights are the four things headline numbers hide.