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“Another positive factor for small-cap bank stocks is some lessening by the federal government of the extremely restrictive regulations under the Dodd-Frank Act and other financial laws passed in the aftermath of the 2008 financial crisis,” reports Investopedia.

An improving U.S. economy could foster increased borrowing and financing by businesses, large and small, across the U.S. while benign mortgage rates could also provide a lift to the mortgage lending operations of community and regional banks.

“Owners of regional banks have made some headway in convincing legislators that their businesses are being unfairly hurt by extensive regulations that are more properly aimed at major financial firms, not local community banks. In 2015, the Federal Reserve relaxed some lending and acquisition regulations for regional banks. Small-cap banking firms are poised to eventually obtain a substantial advantage over major commercial banks in terms of being relatively less hampered by federal regulations and the costs of compliance,” adds Investopedia.

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First Trust NASDAQ ABA Community Bank Index Fund