KBW Bank Index

The KBW Bank Index, introduced by the investment bank Keefe, Bruyette, & Woods (KBW), is a benchmark index that monitors the performance of banks in the US. It comprises publicly traded stocks of banks and represents the US banking industry. It reflects the state and performance of leading banks and offers an overview of the financial services sector that impacts the US economy.

The index was developed by KBW Inc., an investment bank, and it represents 24 US national money centers/wealth development banks, including regional banks, thrift institutions, and banks with publicly traded stocks. While the index reflects all financial services in the US, investment, and insurance are at its core. The banks are selected based on market capitalization, share price, and other economic indicators.

• KBW Bank Index represents the benchmark stock index of the US banking industry.
• The index was developed by KBW Inc., an investment bank, in 1991 and it comprises 24 US national money center banks, including regional banks and other financial institutions.
• The KBW Bank Index has been the standard banking sector benchmark for decades. However, with new benchmarks and indices being introduced, investors have access to multiple indicators, in addition to the KBW Bank Index, to assess financial sector equities and securities.
• It includes ETF risks (of money loss) due to unexpected trading behavior. ETFs trade like stocks and are, therefore, open to investment risk, which may vary in market value and trade at lower prices below an ETF's net asset value.

KBW Bank Index, a benchmark index, monitors the performance of banking stocks trading on the stock market in the US. Through this metric, it is possible to assess the state of the US banking sector. Investors use it to track the performance of the financial sector in the US. The index follows defined eligibility criteria and covers only certain equities and securities. Additionally, an index committee formulates and enforces the required regulations, ensuring appropriate policymaking.

The committee consists of five members: one is a full-time NASDAQ employee, and the remaining four are full-time KBW employees. The committee's primary objective is to develop, maintain, and ensure that the index accurately reflects the movements of the US banking industry. At least one quarterly meeting is held to take action and decide on any pending issues and corporate matters. The discussions are confidential, and the committee retains the right to modify the index methodology. This also involves an exercise to finalize the inclusion or exclusion of certain equities or securities based on industry movements.

The committee assesses the KBW bank index constituents every three months, but interim assessments may occur only in extraordinary scenarios like spin-offs, stock splits, and legal issues. The other important aspects of the index are evaluation, maintenance, and rebalancing. Each equity or security on the index is given an independent weight through a weighting mechanism.

The index is rebalanced every quarter to ensure the maximum weight of a single security (on the index) does not cross 8%, and only a maximum of five securities are at that cap. Investors should ideally combine the index analysis with other relevant indicators to arrive at reasonable predictions.

The KBW Bank Index was conceptualized and introduced on October 21, 1991 with an adjusted base value of 250 points. It was initially linked with the Philadelphia Stock Exchange. Later, NASDAQ acquired it. Hence, it is also called the PHLX Bank Index. The index was developed by KBW Inc., an investment bank founded in 1962, delivering global financial services.

The investment bank was a separate entity, but it was acquired by Stifel Financial in 2013 for $575 million and is now one of its subsidiaries in New York, US. The bank's founding members were Harry Keefe Jr., Gene Bruyette, and Norbert Woods.

Since its inception, the index has seen several rebalances and updates. For instance, options trading was incorporated in September 1992. Currently, various ETF versions of the index help investors and analysts track the underlying index of similar component stocks. However, there is no accurate ETF with a precise correlation to date, which is why the KBW index only increases the likelihood of arriving at sound decisions but does not guarantee results.

The chart below represents the KBW Bank Index, and the red line shows changes in its value.

Source

The above chart represents the performance of the index over the last six months and shows a decline of 24.02% in this period, which is a decrease of -25.17 in value. At the bottom, the dynamics of the index can be studied, including the 52-week high and 52-week low of 116.20 and 70.38, respectively.

The components of the KBW Bank Index are:

• JP Morgan Chase (JPM)
• Bank of NY Mellon (BK)
• Bank of America Corp (BAC)
• Citizens Financial Group (CFG)
• Capital One Financial (COF)
• Citigroup (C)
• Comerica (CMA)
• First Republic Bank (FRC)
• Fifth Third Bank (FITB)
• First Horizon (FHN)
• Huntington Bancshares (HBAN)
• KeyCorp (KEY)
• M&T Bank (MTB)
• Northern Trust (NTRS)
• PNC Financial Services (PNC)
• People's United Financial (PBCT)
• Regions Financial (RF)
• State Street (STT)
• SVB Financial Group (SIVB)
• Signature Bank (SBNY)
• Truist Financial Corp (TFC)
• US Bancorp (USB)
• Wells Fargo & Co (WFC)
• Zion's Bancorp (ZION)

This has been a guide to what Is KBW Bank Index. Here, we explain the topic in detail with its components, chart, and history. You may also find some useful articles here -

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