Which is wrong: Euro-zone banks’ book value or market value?

In the euro zone, banks ’ market value is extremely low relative to the book value of their assets (the ir value-to-book r atio is very low). This may reflect one of two realities: Either their market value is incorrect: investor s’ demand for euro-zone bank shares is abnormally weak; they underestimate banks’ future profitability; Or their book value is incorrect: banks will suffer unprovisioned losses in the future, which are not currently deducted from their capital. An observation of past developments in these two variables (value and book) seems to show that the dominant mechanism is market undervaluation, not book overvaluation .