FIG Interview Questions: Banks & Insurance Guide

FIG — the Financial Institutions Group — covers banks, insurers, asset managers, specialty finance, and fintech. It is the group where the standard IB technical playbook partially breaks, because financial institutions do not work like normal companies: for a bank, debt and deposits are not just financing, they are the raw material of the business itself. That single fact rewires valuation, modeling, and the entire interview.

FIG candidates are usually generalist IB applicants placed into or choosing the group, plus people genuinely drawn to banks and insurance. Interviewers know most candidates prepped from generalist guides, so they deliberately test the places where generalist intuition fails — asking you to value a bank with a DCF, or compute a bank's enterprise value, and watching whether you catch the trap. If you walk in knowing why those questions are traps, you are instantly in the top tier of the pool.

What FIG interviewers actually test

The core test is whether you understand why financial institutions are different. For most companies, you can separate operating decisions from financing decisions, which is what makes enterprise value and unlevered free cash flow meaningful. A bank cannot be separated that way: it earns money on the spread between what it pays for funding (deposits, borrowings) and what it earns on assets (loans, securities). Interest is its revenue and cost of goods sold, not a financing line. So EV-based metrics and unlevered DCFs largely lose meaning, and the analysis moves to equity-side tools.

Beyond that conceptual core, interviewers test the sector vocabulary: net interest margin, provisions and loan losses, regulatory capital for banks; premiums, reserves, and combined ratios for insurers. And as always, motivation: 'why FIG?' needs a real answer, because the skill set is specialized and less obviously transferable, and interviewers want people who chose it.

• Why EV and unlevered FCF break for banks — and what replaces them
• Bank income statement mechanics: NII, NIM, provisions, fees
• Regulatory capital basics: CET1 and risk-weighted assets
• Insurance basics: underwriting economics and the combined ratio
• A genuine 'why FIG' motivation

Core concepts: how to value a bank

Banks are valued on the equity side. The workhorse multiples are price to earnings and price to book — especially price to tangible book value (P/TBV), which strips out goodwill and other intangibles to get at the capital actually supporting the balance sheet. The intrinsic approaches are the dividend discount model — discounting the dividends (or distributable capital) the bank can pay while maintaining required capital levels, at the cost of equity — and residual income models, which value the book plus the present value of earnings above the cost of equity.

The relationship that ties it together, and that interviewers love: a bank's P/TBV should be driven by its return on tangible equity relative to its cost of equity. A bank earning returns above its cost of equity deserves to trade above tangible book; a bank earning below it deserves to trade below. The stylized formula — justified P/B equals (ROE minus growth) divided by (cost of equity minus growth) — is worth knowing, but the intuition matters more than the algebra: profitability relative to the cost of capital determines the premium or discount to book.

For the income statement, know the spine: net interest income is interest earned on assets minus interest paid on funding; net interest margin (NIM) is net interest income divided by average interest-earning assets; provisions for credit losses run through the income statement to build the allowance against future loan losses (US GAAP uses an expected-loss framework, CECL); and fee income — cards, wealth, investment banking — diversifies the spread business. Rising rates generally help NIM for asset-sensitive banks whose loans reprice faster than deposits, but the benefit erodes as deposit costs catch up — a nuance that makes for a strong interview answer.

Core concepts: regulatory capital and insurance

Regulation is the other thing that makes FIG unique: capital requirements effectively set how much banks can lend, distribute, and return to shareholders. The headline metric is the CET1 ratio — common equity tier 1 capital divided by risk-weighted assets, where assets are weighted by riskiness rather than counted at face value. Regulators set minimum ratios (with buffers layered on top); banks manage to targets above the minimums. You do not need the full Basel rulebook, but you must know what CET1 measures, that RWA (not total assets) is the denominator, and that capital constraints link directly to valuation via how much the bank can pay out.

Insurance has its own vocabulary. Insurers collect premiums today against claims paid later, and invest the 'float' in between — investment income is a core earnings driver, not a side effect. For property and casualty insurers, the combined ratio is the underwriting scorecard: the loss ratio (claims over premiums) plus the expense ratio (costs over premiums). A combined ratio below 100 percent means underwriting profit before investment income; above 100 percent means the insurer relies on float returns to make money. Life insurance is longer-duration and more rate-sensitive, with reserving assumptions doing heavy lifting. Insurers, like banks, are valued on P/E and price to book, with book value quality a constant question.

Classic question types and answer frameworks

The signature FIG questions are the trap-detection ones. 'Walk me through a DCF for a bank' — the right response is to flag that unlevered FCF is not meaningful for a bank because interest is operating, then pivot to a dividend discount or residual income framework discounted at the cost of equity. 'What is a bank's enterprise value?' — explain why EV is not a useful construct when debt is raw material, and move to equity value metrics. Handling the pivot gracefully, rather than just executing the generalist recipe, is the whole test.

Mechanism questions come next: 'what happens to a bank when rates rise?' wants the NIM expansion story with the deposit-repricing caveat, plus the mark-to-market hit on securities portfolios and potential credit pressure on borrowers. 'Why do two banks trade at different multiples of book?' wants the ROE-versus-cost-of-equity logic plus asset quality and growth. Insurance-side, 'how does an insurer make money?' wants underwriting profit plus float investment income, with the combined ratio as the metric. The real bank-tagged questions appended below this guide give you the actual phrasings.

Common mistakes

The cardinal sin is applying generalist tools without noticing they broke: computing EV/EBITDA for a bank (banks do not have meaningful EBITDA — interest is not an add-back when it is the business), or running an unlevered DCF on deposits-funded cash flows. Interviewers set these traps on purpose; falling in signals you memorized recipes rather than understood them.

Other frequent errors: confusing book value with tangible book value in multiples; treating loan loss provisions (income statement expense) and the allowance (balance sheet reserve) as the same thing; asserting that rising rates are unambiguously good for banks without the funding-cost and securities-portfolio caveats; and, on insurance, forgetting investment income entirely and judging insurers on underwriting alone. Finally, a generic 'why FIG' — the honest, specific version ('financials are the economy's plumbing, the regulation makes the analysis distinctive, the sector is consolidating') always beats a placement rationalization.

• Using EV/EBITDA or unlevered DCFs on banks
• Mixing up book value and tangible book value
• Confusing provisions (P&L) with the allowance (balance sheet)
• One-sided 'rates up = good for banks' answers
• Ignoring float and investment income in insurance economics

How to prepare

Learn the generalist technicals first — FIG interviews still open with accounting and valuation basics — then explicitly study the deltas: the list of places where bank and insurance analysis diverges from the standard playbook. That framing ('what changes and why') is more efficient than learning FIG from scratch, and it mirrors how interviewers structure their questions.

Reading one real bank earnings release and one insurer release teaches more than any guide chapter: you will see NIM, provisions, CET1, and combined ratios in the wild. For the vocabulary layer, WACC Buddy's FIG deck drills the definitions and trap questions with spaced repetition so the 'why is this different for a bank?' reflex is automatic in the room.

1. 01Nail generalist accounting and valuation first
2. 02Write out the 'what breaks for banks' list: EV, EBITDA, unlevered FCF — and what replaces each
3. 03Learn the bank income statement spine: NII, NIM, provisions, fees, and the rate-sensitivity story
4. 04Learn CET1 and RWA conceptually, and the combined ratio for insurers
5. 05Read one bank and one insurer earnings release and be ready to discuss them
6. 06Prepare a specific 'why FIG' answer

FAQ