The banking sector was hit hard by low interest rates. Now that rates are rising, it stands to reason both national and regional banks should do better with higher interest rates. An easy way to play this is through a bank ETF.
There’s a big difference between the two types of banks. Big banks have the added risks from their investment bank, proprietary trading desk, and global reach. Not to mention big banks are still dealing with a higher legal, regulatory, and consumer scrutiny since the crisis.
However, regional banks follow a more traditional banking model, where banks make money on the spread between interest paid on deposits and the interest charged on loans. When interest rates rise, the spread widens and profits increase. Continue Reading…