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11 Best Local Bank Stocks to Buy According to Hedge Funds

Fatima Farooq
10 min read

In This Article:

In this article, we will be taking a look at the 11 best local bank stocks to buy according to hedge funds. To skip our detailed analysis of the banking industry, you can go directly to see the 5 Best Local Bank Stocks to Buy According to Hedge Funds.

The 2023 Banking Crisis

In March 2023, the US banking industry witnessed a severe crisis with the failure of three small-to-mid-sized banks. These included Silicon Valley Bank (SVB), Silvergate Bank, and Signature Bank (NASDAQ:SBNY). The collapse of these three banks sent the US public into a panic. The SVB collapse, in particular, led to a significant uproar considering the fact that the bank's clients included major technology companies and wealthy individuals who had made large deposits with the bank. Rising interest rates had led to these three banks suffering large unrealized losses on US Treasury bond holdings, and the resulting failures of these institutions set in motion the 2023 banking crisis.

The banking industry has managed to settle down somewhat since March, especially since the Federal Reserve made promises to honor the deposits of the three failing banks. Here's a comment from the Federal Reserve's Chair, Jerome Powell, on the situation, made this March:

"You have seen that we have the tools to protect depositors when there's a threat of serious harm to the economy or to the financial system, and we're prepared to use those tools. I think depositors should assume that their deposits are safe."

Despite the above statement, it is to be noted that Chairman Powell sidestepped the question of whether the Federal Reserve is prepared to bail out the depositors of banks with less than $1 billion in assets in the event that such a bank fails. Thus while the Fed seems to have extended a guarantee for the deposits of larger banks, the situation seems unclear when it comes to smaller banks and their depositors, throwing the clientele of such banks and the institutions into a frenzy over what to expect from the Fed in the event that the banking crisis worsens.

Big Banks May Be In The Clear, But What About Small Banks?

Additionally, according to CNBC, Treasury Secretary Janet Yellen also commented this March that not all banks in the US, regardless of their size, would be fully insured. So while US bank regulators managed to fully insure the deposits of SVB and Signature Bank (NASDAQ:SBNY), this treatment has not been promised to all other US banks in the event of a collapse, leaving smaller banks and their depositors in a state of paranoia. This paranoia also led to smaller US banks facing increased amounts of withdrawals while mega-banks began gaining in deposits. According to a Wall Street Journal article from this March, after the SVB collapse, the 25 largest banks in the US gained about $120 billion in deposits, as shown by Federal Reserve data. At the same time, smaller US banks suffered from losses amounting to $108 billion over the same period.

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