Master Theory and Brainstorming Equity Research Banking Sector Interviews Questions Answers

Getting into equity research for the banking sector isn't just about memorizing textbooks. The real test is showing interviewers you understand how the industry actually works whether that's analyzing a deposit crisis at a regional bank or explaining why Goldman Sachs is still the leader in M&A while others struggle.

Here are 15 interview questions that dig into the core of banking fundamentals, regulations, and market competition. I’ve paired each one with real-world examples from JPMorgan, Goldman Sachs, Citigroup, and Indian banks so you can see how the theory plays out in real life.

It doesn't matter if you're interviewing at a huge investment bank or a smaller firm; the goal is the same. They want to see if you can break down a bank’s business, understand where their profit margins come from, and explain their competitive edge.

We’ll cover everything from handling liquidity crunches and valuation discounts to understanding heavy regulations like Basel III. This isn’t just about memorizing answers it’s about learning to structure your thoughts like a professional analyst.

Tips and Tricks for Interview Success

Before the Interview

• Do your homework on current events: Don't just skim the headlines. Know the latest M&A league tables, recent bank earnings, and big regulatory changes. If you mention specifics like how JPMorgan grew its financial sponsor M&A by 124% you prove you're actually paying attention.

• Know who you're talking to: If the firm covers US banks, focus on regional banking stress, Fed policy, and Basel III. If they cover Indian banks, shift your focus to the dynamic between PSU and private banks and current NPA trends.

• Master the metrics: You need to know these cold: NIM (Net Interest Margin), efficiency ratio, ROTCE, loan-to-deposit ratio, and CET1 capital. More importantly, be ready to explain exactly what drives these numbers up or down.

During the Interview

• Drop real examples immediately: Skip the theory. Don't say "When a bank has issues..." Say, "When Silicon Valley Bank faced deposit outflows in March 2023..." This shows you understand history and context.

• Use actual numbers: Avoid vague phrases like "margins will compress." Instead, say "private banks are seeing NIM compress by 15-17 basis points, while PSU banks are facing 10-20 basis points of pressure." Specificity wins.

• Look at both sides: Good analysts understand trade-offs. If you're talking about selling loans vs. keeping them to maturity, explain the cost: a $75 million realized loss now versus $62.5 million in future interest income.

• Connect the dots: Don't view topics in silos. Link Basel III capital requirements to a bank's competitive moat, or explain how an inverted yield curve hits both NIM and loan demand at the same time.

How to Structure Your Answers

• Get to the point: Don't build suspense. If they ask about the PSU bank discount, start with: "PSU banks trade at 0.8-1.0x book versus 2.5-3.0x for private banks because of these three factors..."

• The Rule of Three: Organize your thoughts into three key points. It keeps you focused and makes your answer easy for the interviewer to remember.

• Speak the language: Use professional phrasing like "mark-to-market losses," "asset-liability management failure," or "competitive moat." It signals that you know the industry lingo.

Common Traps to Avoid

• Don't just memorize buzzwords: Interviewers can smell this a mile away. You need to understand the concepts well enough to explain them simply.

• Avoid the "It depends" trap: Saying "it depends" without backing it up sounds weak. Instead, say "It depends on three factors: capital ratios, loan portfolio, and deposit mix. Here is how..."

• Don't ignore history: If you talk about regional banks but don't mention the 2023 failures, you look out of touch.

• Skip the definitions: Don't define NIM unless they ask. Assume they know what it is; focus on what drives the changes.

Advanced Prep (Leveling Up)

• Know the competition: Understand why JPMorgan leads in M&A (huge balance sheet), while Goldman Sachs relies on sector expertise, and Citi focuses on cross-border deals.

• Track the regulations: Know the timeline. Basel III extends to 2028, BNPL regulations hit in 2025, and stablecoin frameworks are just emerging. Showing you know the schedule proves you track the evolution of the sector.

• Do the math: If they ask about margin compression, be ready to calculate the percentage impact. If discussing loan sales, walk them through the ROI math.

• Defend your view: Anticipate the "What if?" questions. If you suggest selling loans, be ready to answer, "What if that creates too much upfront loss?"

After the Answer

• Bridge to the next topic: After explaining PSU discounts, add, "This valuation gap is exactly why PSU banks became M&A targets during the consolidation wave."

• Show you're still learning: Reference something current, like "Citi's turnaround under Jane Fraser shows how execution drives re-rating."

• Ask smart questions: When it's your turn, ask about the firm's specific view on a bank or how they think Basel III will impact their coverage list.

Banking & Financial Institutions: Advanced Interview Q&A

1. If a large retail bank is experiencing rapid deposit outflows during a liquidity crisis, what strategic options would you recommend and what are the trade-offs?

Suggested Answer: If I were advising the bank, I would look at three specific paths, but each comes with a distinct cost. First, we could access emergency funding through sources like the Federal Reserve's discount window or FHLB advances. The problem here is the stigma cost; if the market sees us taking "emergency" money, they might assume we are weak, which can actually accelerate the panic.

Second, we could liquidate high-quality liquid assets (HQLA), like Treasury bonds. The trade-off is that if rates have risen, we would have to sell these bonds at a loss. This turns a paper loss into a realized loss, which immediately hits our capital ratios.

Third, we could aggressively raise deposit rates to convince customers to stay. The downside is that this crushes our Net Interest Margin (NIM). If we hike rates by 2% to save the funding, our profitability evaporates. My recommendation would be a blended approach: Use FHLB advances for immediate cash to stop the bleeding, sell only short-duration assets to minimize capital hits, and raise rates selectively for large, sensitive depositors rather than the entire customer base.

Tip: The interviewer wants to see that you understand risk management. Don't just list the options; immediately explain the "pain" associated with each one (stigma, capital loss, or margin compression).

2. How would regional bank performance be disproportionately impacted by a downturn in local real estate prices compared to national banks?

Suggested Answer: Regional banks suffer more because they lack diversification. I see three main factors hitting them harder. First is geographic concentration. A regional bank might have 60% of its loan book in one city. If that local real estate market drops, their entire portfolio struggles. A national bank like JPMorgan spreads that risk across 50 states, so a local crash doesn't sink the ship.

Second, collateral values tend to evaporate faster for regionals because they often hold more commercial real estate loans relative to their size. When prices drop, their Loan-to-Value (LTV) ratios spike above regulatory limits quickly.

Third is the flight to safety. When a local economy struggles, depositors get scared and move their money to the "Too Big to Fail" national banks. So the regional bank gets hit from both sides: their asset quality drops, and their funding leaves simultaneously.

Tip: Use the phrase "Flight to Safety." It is a standard industry term describing how money moves from small banks to big banks during a crisis, and using it shows you know the lingo.

3. Why do PSU banks typically trade at a discount to private sector banks despite growing at system rates or better?

Suggested Answer: I believe this valuation gap often trading at 0.8x book value versus 3x for private banks comes down to three specific investor concerns.

First is the "Sovereign Discount." Investors worry that the government might influence PSU banks to lend to politically important but economically weak sectors, which hurts their Return on Equity (ROE).

Second is legacy asset quality. Even though PSU books are clean now, investors have long memories of the high Non-Performing Asset (NPA) cycles of the past. The market demands a "risk premium" just in case those bad loans return.

Third is operational efficiency. Private banks are often viewed as technology companies with a banking license, boasting better cost structures. However, I would argue this gap is an opportunity right now. With many PSU banks now delivering 15-16% ROE, the discount is becoming unjustified, which explains their recent stock rally.

Tip: End your answer with a forward-looking statement like "this is an opportunity." It shows you think like an investor, not just an accountant.

4. Explain how the transition from pipeline banking to open banking models changes competitive dynamics for traditional banks?

Suggested Answer: You have to visualize this as a shift from a "walled garden" to a "public utility." In the traditional Pipeline model, the bank controlled everything the customer data, the app, and the products. It was a monopoly on the relationship.

Open Banking breaks that monopoly. By forcing banks to share data via APIs, fintech companies can now access a customer's transaction history to offer better products. This leads to fragmentation. A customer might keep their checking account at the bank but use a third-party app for budgeting and loans. The bank risks becoming invisible infrastructure just the plumbing while competitors capture the high-value services and fees.

Tip: Use the analogy of "Infrastructure vs. Interface." It explains clearly that banks risk becoming just the pipes (infrastructure) while fintechs become the app the customer actually looks at (interface).

5. If you were analyzing investment banking divisions at JPMorgan, Goldman Sachs, and Citi, what factors would explain their different market share positions in M&A advisory?

Suggested Answer: The rankings usually come down to three structural differences. JPMorgan leads because of its balance sheet. They don't just advise on the deal; they can write the massive check to fund it. That "one-stop-shop" financing power is a huge advantage in winning mandates.

Goldman Sachs relies on its premium brand. They dominate complex sectors like Tech because CEOs feel safer telling their board "we hired Goldman." They capture the highest fee premiums because their involvement signals to the market that a deal is serious.

Citi typically trails the other two because they have historically lacked depth in specific hot sectors like technology. However, they are very strong in cross-border deals because their global footprint is unmatched.

Tip: Distinguish between "Balance Sheet banks" (like JPM/Citi who lend money) and "Pure Advisory/Brand" strengths (like Goldman). This is the fundamental split in investment banking.

6. If interest rates are cut by 100 basis points, explain why private banks experience sharper margin compression than PSU banks?

Suggested Answer: This comes down to the liability mix and how "smart" the depositors are. Private banks cater to corporations and wealthy individuals who track interest rates closely. When rates fall, these clients demand lower loan rates immediately. However, the bank cannot lower the interest it pays on deposits fast enough to match. This squeezes their Net Interest Margin (NIM) quickly.

PSU banks have a massive base of sticky, retail savings accounts. These customers rarely move their money over a small rate change. This gives PSU banks pricing power; they can lower deposit rates to protect their margins without losing customers. Additionally, PSU banks hold large portfolios of government bonds. When rates fall, bond prices rise, giving them significant treasury gains that private banks might not see to the same extent.

Tip: The key concept is "Liability Sensitivity." Private banks have liabilities (deposits) that reprice faster and more aggressively than PSU banks.

7. How would you assess whether a bank should pursue proactive loan sales versus holding loans to maturity when rates are expected to moderate?

Suggested Answer: I would approach this as a comparison between immediate pain and opportunity cost. First, I would calculate the mark-to-market loss. If we sell the loans today, we take a realized loss immediately because rates are high. This hits our capital right now.

Second, I would look at reinvestment rates. If selling those loans frees up capital that we can immediately lend out at a much higher rate, the math might work. We need to see if the extra income from new loans over the next three years outweighs the one-time loss of selling the old ones.

Practically, if the bank is tight on capital, they usually cannot sell they can't afford the hit to book value. But if they have excess capital, selling "underwater" assets to clean up the balance sheet is often the right long-term move.

Tip: Focus on "Capital Constraints." Even if selling makes economic sense, a bank can't do it if it drops their regulatory capital below the minimum requirement.

8. Goldman Sachs ranks in the top three for global M&A advisory while Citi recently moved from seventh to fourth place. What organizational factors explain this performance gap?

Suggested Answer: Goldman’s advantage is deep-rooted in its partnership culture. Even as a public company, they maintain intense internal accountability where underperformance isn't tolerated. Their teams are also highly integrated, meaning the same bankers handle M&A and financing, which builds deeper client trust.

Citi’s recent improvement to fourth place is largely due to organizational simplification under CEO Jane Fraser. She removed layers of middle management and eliminated co-head structures. This stopped internal politics and focused the bank on winning deals. However, Citi still faces a talent retention challenge. Top bankers often leave for Goldman because the path to promotion and pay is perceived as clearer there.

Tip: Mentioning specific strategic moves like "removing management layers" shows you follow the actual news and understand how corporate structure affects performance.

9. Explain how Basel III implementation creates both challenges and opportunities for banks in different regions?

Suggested Answer: Basel III essentially requires banks to hold more capital against their risks. The challenge is greatest for the big US banks. The rules increase their Risk-Weighted Assets (RWA), which mathematically lowers their Return on Equity. They have to hold more dead cash in reserve, which hurts profitability.

The opportunity, ironically, is that these regulations create a competitive moat. Smaller regional banks and non-bank competitors often cannot afford the expensive compliance systems or the higher capital buffers. So, while Basel III makes it harder for big banks to earn high returns, it also protects their market share by making it nearly impossible for new players to challenge them.

Tip: Framing regulation as a "Barrier to Entry" or a moat is a sophisticated strategic insight. It shows you understand the business impact, not just the compliance rule.

10. If an NBFC shows negative NIM, what does this indicate about their lending effectiveness and what corrective actions would you suggest?

Suggested Answer: A negative Net Interest Margin (NIM) is a fundamental crisis. It means the NBFC is paying more to borrow money than it earns from lending it. This usually points to three failures: mispriced lending (undercutting competitors too deeply), asset-liability mismatch (borrowing short/lending long), or adverse selection (attracting bad borrowers).

To fix this, I would suggest a "triage" approach. First, stop new originations immediately unless they meet strict profitability hurdles. You cannot grow your way out of negative margins. Second, reprice existing loans where possible. Third, if the business model is structurally broken, the NBFC must shrink the balance sheet selling off assets to pay down expensive debt. It is better to be smaller and solvent than larger and bankrupt.

Tip: Be decisive. Negative NIM is a fatal condition for a lender. Words like "Stop immediate originations" show you understand the urgency.

11. If you had to analyze Citigroup's turnaround strategy under CEO Jane Fraser, what five key performance indicators would you track?

Suggested Answer: Turnarounds are messy, so I would focus on five metrics that cut through the noise.

First is ROTCE (Return on Tangible Common Equity). This is their main target (11-12%), and it tells us if the restructuring is actually creating value. Second is the Efficiency Ratio. Citi has historically had high costs. We need to see expenses dropping as a percentage of revenue.

Third is Investment Banking Market Share. We need to verify that the internal changes are actually helping them win more deals against JPM and Goldman. Fourth is Capital Return, specifically buybacks. Since Citi trades below book value, buying back stock is the best use of cash. Fifth is Transformation

Expense. They are spending billions to fix legacy tech. I would track if these costs are eventually coming

down as promised, or if they are becoming a permanent drain.

Tip: Metrics like ROTCE and Efficiency Ratio are the standard language of bank analysis. Memorize these terms.

12. How would enhanced consumer protection regulations around hidden fees and BNPL services impact bank profitability models?

Suggested Answer: Regulators are targeting "junk fees," which hits the Non-Interest Income line hard. For traditional banks, capping overdraft and late fees can wipe out huge chunks of high-margin revenue billions of dollars that used to flow straight to the bottom line.

For BNPL (Buy Now, Pay Later), new rules requiring affordability checks add compliance costs and slow down transaction volumes. The strategic impact is that banks can no longer rely on "lazy" fee income. They have to pivot to transparent pricing or subscription models. It shifts the game from penalizing struggling customers to engaging customers with better services that they are willing to pay for upfront.

Tip: Differentiate between Interest Income (loans) and Non-Interest Income (fees). Regulations on fees attack the Non-Interest Income bucket.

13. Explain how stablecoin oversight and crypto service provider licensing affects traditional banks competing with fintech?

Suggested Answer: I actually think regulation is a huge advantage for traditional banks here. Previously, fintechs moved fast because they ignored banking rules. Now, regulations are forcing them to hold 1:1 reserves and do proper audits. This levels the playing field and removes their speed advantage.

It also creates a trust arbitrage. If a stablecoin must be regulated, corporate clients will trust a bank like JPMorgan over a startup. Banks can now use their existing compliance infrastructure and balance sheets to issue their own stablecoins. They can capture this market by offering a "safe, regulated" alternative that institutional investors feel comfortable using.

Tip: Highlight the concept of "Trust" as a banking asset. In crypto, trust is the scarcest resource, and banks have a surplus of it compared to fintechs.

14. If regional banks show persistent difficulty securing deposit funding, what alternative funding sources should they explore?

Suggested Answer: When cheap deposits leave, regional banks have to "buy" funding. It costs more, but it keeps them alive. First, they should use FHLB Advances. This is a reliable, collateralized way to borrow cash. Second, they can use Brokered Deposits. This involves listing the bank on national platforms to attract depositors from across the country. The catch is that this money is expensive and not loyal—it is "hot money."

Third, they should look at Securitization. Instead of holding loans on their books, they can package them into bonds and sell them. This turns illiquid loans into immediate cash. The goal isn't to rely on these forever, but to use them as a bridge until they can stabilize their core deposit base.

Tip: Distinguish between "Core Deposits" (cheap, sticky, local) and "Wholesale Funding" (expensive, volatile, national). The alternatives listed here are Wholesale Funding.

15. Why is a flattening or inverted yield curve negatively correlated with regional bank health?

Suggested Answer: Regional banks operate on a simple model: "Borrow Short, Lend Long." They pay low rates on savings accounts and earn high rates on 30-year mortgages. When the yield curve inverts, short-term rates (what they pay) rise higher than long-term rates (what they earn). This destroys their spread, or profit margin.

Furthermore, an inverted curve usually signals a recession. This creates a double problem: the bank makes less money on every loan because the spread is tight, and simultaneously, loan demand dries up because businesses are scared to invest. This combination of margin compression and low volume is why regional bank stocks typically underperform when the curve inverts.

Tip: Connect the Yield Curve directly to the Business Model. The curve is not just a graph; it is the mathematical basis of how banks make money.

Note for the Candidate

When you answer these in the interview, don't just recite the facts. Connect the dots. The interviewer wants to see that you understand the Second-Order Effects—not just that "rates go up," but "rates go up, so margins squeeze, so banks must pivot to fee income." That is the level of thinking that gets you the offer.