Since the 2008 downturn, new banking regulations are costing the six largest U.S. banks billions of dollars, weighing on financial stocks and sector-related exchange traded funds.

The Financial Select Sector SPDR (NYSEArca: XLF) has gained 5.0% year-to-date, whereas the S&P 500 index is up 7.8%. Over the past five-years, XLF has shown an average return of 14.2%, lagging behind the 17.6% return from the S&P 500.

Between the end of 2013 and the end of 2007, regulatory costs increased by over 100%, or $35.5 billion, to $70.2 billion for Bank of America (NYSE: BAC), Citigroup (NYSE: C), Goldman Sachs (NYSE: GS), JP Morgan Chase (NYSE: JPM), Morgan Stanley (NYSE: MS) and Wells Fargo (NYSE: WFC), reports Saabira Chaudhuri for the Wall Street Journal. [Pricey Financials in a Precarious Spot]

The costs are specific to these banks, along with others with assets over $50 billion, due to their size and perceived risk.

Consequently, the Federal Financial Analytics argues that pre-tax earnings from these banks could diminish by $22 billion to $34 billion each year due to Dodd-Frank regulatory rules that restrict products the banks can offer, including proprietary trading, ban on certain investments and new “qualified-mortgage” lending standards.

Additionally, the analytics firm calculates that earnings for the big six dropped by $2.1 billion in 2013 as a result of the Durbin Amendment, which forced banks to offer merchants more choices of companies used to process debit-card transactions.

The broad changes to the financial regulatory landscape has weighed on the sector and related ETFs. For isntance, XLF’s holdings include BAC 5.7%, C 5.3%, GS 2.6%, JPM 7.9%, MS 1.6% and WFC 8.8%, which make up about 31.9% of the overall portfolio.

An “issue that remains a major headwind for U.S. banks is recurring regulation and litigation expenses, which continue to hit banks’ income statements,” according to Morningstar analyst Robert Goldsborough.

Financial Select Sector SPDR

XLF_ETF

For more information on the financials sector, visit our financial category.

Max Chen contributed to this article.

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