Until recently, regional bank exchange traded funds (ETFs) were the stalwarts of this whole crisis, resisting the downward motion of the general markets.
But now investors fear that these banks are going to get steamrolled right along with the general global credit crisis, report Jonathan Spicer and Juan Lagorio for Reuters. Many wondered which banks were going to need a merger partner in order to survive the meltdown of our financial system.
These smaller banks don’t pose a risk to the entire financial system. Many of them are small enough that the Federal Deposit Insurance Corp (FDIC) could seize them and sell them off.
While the big banks were indeed hit today, including Bank of America (BAC) and JPMorgan Chase (JPM), regional banks also felt the effects.
As a reminder, the Federal Deposit Insurance Corporation (FDIC) insures up to $100,000 per depositor (not per account, but per individual). The $100,000 amount applies to all depositors of an insured bank, except for owners of certain retirement accounts, which are insured up to $250,000 per owner, per insured bank.
Since these funds are still just near or above their 200-day moving averages, we believe that when the market begins to turn around, they’ll show a quick, strong recovery thanks to the nimbleness of their underlying holdings.
The ETFs affected include:
- KBW Regional Bank (KRE): down 5.1% year-to-date; down 10.1% in the last week; up 31.4% in the last three months
- iShares Dow Jones U.S. Regional Banks (IAT): down 31.3% year-to-date; down 12.7% in the last week; up 16.5% in the last three months