Financial exchange traded funds (ETFs) have felt the pinch. Smaller banks have been weighed down by TARP while the big ones struggle with foreclosures and weak economic growth.

Banks of many sizes are challenged in raising capital, and TARP funds have been cutting into their bottom lines and shareholder returns. Some community banks have tried to exit, but have so far found doing so difficult. Joanne Kim for the Los Angeles Business Journal reports that the Treasury’s program officially ended earlier this month with the halt of any new federal assistance, though most of the nation’s largest banks, including Bank of America Corp. (NYSE: BA) and JPMorgan Chase & Co. (NYSE: JPM), got out last year.

Steve Chiotakis for MarketPlace reports that Bank of America lost more than $7 billion in its latest quarter while Goldman Sachs reported it made nearly $2 billion. The bank says that’s because of a one-time charge related to credit and debit card reform. Many of the banks are on a capital reform trend, however, there are still plenty of hiccups that are ahead. We are still seeing the after effects of the huge financial crisis and the huge bust in the mortgage business. [Homebuilder ETFs Wait On Recovery.]

  • iShares Financial Services (NYSEArca: IYG)
  • SPDR KBW Bank (NYSEArca: KBE)

According to Bloomberg BusinessWeek, the regional banks have suffered more than most and a long slog may be ahead as the economic recovery looks tepid and lending revenue slows. The pace of credit improvement may lag as housing and commercial real estate face increased challenges going forward. [Financial ETFs Are Getting Their Color Back.]

  • SPDR KBW Regional Bank (NYSEArca: KRE)
  • iShares Dow Jones U.S. Regional Banks (NYSEArca: IAT)

Tisha Guerrero contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.