Australia's big banks continue to fall: Should you buy?

Shares in Australia's biggest banks have continued to fall today, as the local market follows Wall Street's lead on Friday.

Since September, all of the big banks have been unable to break-even, as the broader Australian market falls hard…

Source: Google Finance and Morningstar. ¹ASX 'Banks' Sector Average is 1.29, entire S&P/ASX 200 average = 1.22

Obviously, for shareholders who bought shares earlier in the year, the 8% price falls across a majority of the banks will wipe out the benefits of the dividends they receive.

However, the latest falls wouldn't come as a surprise to Foolish (capital 'F') investors, who have long known that none of Australia's big banks were cheap. And they still aren't!

In fact, I believe all of the big banks have a way to go before they should be considered a good long-term buy.

As can be seen in the table above, all of the big banks still trade considerably above the price-book average, for the sector. I would consider buying bank shares if they traded at a price-book ratio less than 1.4.

A price-book ratio (or, preferably, a price-to-tangible-book ratio) is the appropriate valuation ratio to use when putting a bank's market price into context.

Of course a P/B ratio for Macquarie Group – an investment bank at heart –probably isn't as indicative of 'value' because much of its income is derived through services.

A better alternative than the big banks – Yours FREE!

The big banks' share prices have performed poorly over the past five weeks but over recent years have done exceptionally well. While I agree most of them would be great stocks to buy and hold forever, they are not a good buy at today's prices.