Tl;dr: Stocks of small US lenders are struggling nearly a year after the regional banking crisis, with the KBW Nasdaq Regional Banking index falling 2.4% this year compared to the S&P 500’s 2.6% gain. Fourth-quarter earnings reports from regional banks have raised concerns that the industry has yet to fully recover from last year’s turmoil. The Federal Reserve’s decision to close its rescue program for regional banks is expected to add further challenges to the sector.
Regional bank stocks have struggled since the collapses of Silicon Valley Bank and Signature Bank sparked a flight on deposits and sent shockwaves through the stock and bond markets. High interest rates and concerns about regional banks’ bond portfolios have also contributed to this challenging environment.
However, there was some relief for regional bank stocks during the late-2023 “everything rally,” which saw assets from crypto to gold to stocks race higher. The Fed had planned three rate cuts for 2024, but with recent hot economic data and warnings from Fed officials about cutting rates too soon, the prospects of rate cuts have become uncertain.
The closing of the Bank Term Funding Program by the Federal Reserve is expected to further challenge the health of regional banks. This program was established to help banks meet their liquidity needs after last year’s turmoil.
