Insider Monkey

10 Best Regional Bank ETFs

Aima Zaheer
10 min read

In This Article:

In this article, we will take a look at the 10 best regional bank ETFs. If you want to skip our discussion on the banking industry, you can check out the 5 Best Regional Bank ETFs.

It has been over six months since the US regional bank crisis unfolded in March 2023. Experts believe that the crisis had a permanent impact on the US regional bank industry and the overall economy. The crisis resulted in the imposition of stricter credit restrictions by regional banks, worsening an already challenging environment characterized by the increase in benchmark interest rates by the US Federal Reserve to combat inflation and cool down the economy. Experts add that the impact of the regional banking crisis can be seen as similar to the effect of 50 basis points (bps) to 75 bps increase rate hike by the US central bank. Furthermore, the crisis is expected to adversely impact the US GDP by 1.5% in the next 12 to 18 months.

Notable banks had begun reducing the amount of credit offerings when the US Federal Reserve started interest rate hikes in 2022. However, it wasn't until the collapse of Silicon Valley Bank (SVB) in March 2023 that regional banks, particularly those with assets ranging from $10 billion to $100 billion, pulled back on their loan offerings. The SVB crisis took place when corporate accounts, tech startups, and venture funds decided to withdraw $42 billion in a single day on March 10. This resulted in a run on the bank as the confidence of the depositors plummeted, and they looked for alternative big banks. The failure of the SVB was followed by the downfall of the New York-based Signature Bank, which had heavy exposure in the cryptocurrency world. The bank had also faced a high level of uncertainty for nearly a year. Similarly, First Republic Bank also found itself in crisis. JPMorgan Chase & Co. (NYSE:JPM) initially rescued First Republic through a $10 billion financing in March 2023 and subsequently acquired and rescued the bank in May 2023. This cemented JPMorgan’s position as the industry leader in the banking sector. Within a short period, the US faced the second, third, and fourth biggest banking failure in its history through the downfall of First Republic, SVB, and Signature Bank. All these distressed banks had heavy exposure to sectors that are adversely impacted by interest rate increases.

Role of Regional Banks in the US Banking Sector

Many experts and industry observers believe that regional banks play a crucial role in supporting the stability of the US banking sector. This is because large, diversified financial services giants such as Bank of America Corporation (NYSE:BAC), Citigroup Inc. (NYSE:C), JPMorgan Chase & Co. (NYSE:JPM), and Wells Fargo & Company (NYSE:WFC) are increasingly focused on their global capital market activities, often allocating resources and investments outside the United States. This has led to the perception that these mega-banks may not be as actively engaged in fostering domestic production and supporting small businesses as regional banks are. Small businesses, which employ nearly 50% of all private sector workers in the United States, often prefer to establish relationships with smaller or mid-sized banks. In 1994, the US Congress enacted legislation that led to a significant shift in the banking industry. This legislative change allowed banks to expand their operations into multiple states for the first time and permitted bank mergers. Following this development, the number of banks in the US plummeted from 10,000 to 4,200 from 1995 to 2021. Simultaneously, the number of bank branches increased from 59,000 to 72,000. This shift occurred as numerous national banks capitalized on the opportunity to expand their presence across states, leading to the consolidation of smaller banks and the growth of larger institutions.

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