The six largest Canadian banks traded above book value at the end of 2024, with the sector's valuation reaching levels well above historical averages. Book value is the accounting measure of what shareholders own after subtracting liabilities from assets. When banks trade below book, the market is pricing them as if their assets are worth less than the balance sheet claims, or as if future returns on equity will fall short of what investors demand.

The valuation framework matters because earlier analyses described where bank valuations stood during different market conditions. The timing gap explains the difference. The January piece described where bank valuations stood in late 2024 during the market pullback that followed the November election and the renewed trade threat cycle. By year-end, the sector had recovered from the market pullback that followed the November election. The 67% valuation reflected peak pessimism. The 75.9% reflects what actually settled once quarterly earnings cleared and the first-quarter guidance came through stronger than the market had priced.

The structural question underneath both numbers is the same: why Canadian banks trade persistently below book when US regional banks of comparable size often trade at or above it. The answer has three parts. Canadian banks earn comparable or higher returns on equity than their US peers. According to OSFI's February 2026 benchmarking analysis, Canadian systemically important banks have exhibited higher ROE than most international peers, and Canadian banking segment ROE tends to be materially higher than US and international segments. That spread alone justifies a lower price-to-book. Canadian banks also carry higher residential mortgage exposure as a share of total assets, and mortgages are lower-margin, lower-risk loans that compress ROE. Finally, the Big Six operate in an oligopoly that limits both upside growth and downside risk. Investors pay less per dollar of book value because the upside is capped.

Market conditions shifted between November and December as trade threat headlines evolved and the Bank of Canada's rate guidance clarified. Trade threat headlines peaked in the third week of November when the incoming administration announced plans for blanket tariffs on Canadian steel and aluminum, which would have affected $27.6 billion in annual exports. Bank stocks sold off on the assumption that a trade war would slow GDP growth, increase loan loss provisions, and delay rate cuts. By mid-December, two things had shifted. The tariff language softened to sector-specific carve-outs rather than blanket measures. And the Bank of Canada's December statement made clear that rate cuts would continue into 2025 regardless of trade policy, which supported the net interest margin outlook for the banks.

The move also tells you what did not change. Banks are still trading a quarter below book. The market is still pricing in the risk that loan portfolios deteriorate faster than current provisions reflect, or that margin compression from falling rates outweighs the benefit of higher loan volumes. The 75.9% is a less-pessimistic signal, not a bullish one.

For readers using the earlier 67% figure as a reference point, the update changes the framing but not the conclusion. If you were waiting for banks to trade at or above book before adding exposure, you are still waiting. If you were using the discount to book as a margin-of-safety threshold for entry, the threshold moved by nine percentage points, but the method holds. Book value itself grew roughly 7% year-over-year across the Big Six in 2024, driven by retained earnings, so a bank trading at 75.9% of a higher book is not the same as 75.9% of 2023 book.

The path of loan loss provisions drives bank valuation in 2025 more than the price-to-book ratio itself does. Provisions were stable in Q4 2024 but are rising as a share of pre-provision earnings. That ratio, not the market multiple, determines whether the discount to book is justified or excessive.