One Year After the Banking Crisis, How Are Regional Banks Faring?

Executive summary:

  • When the regional banking woes unfolded in March 2023, we argued that the challenges were not likely to be systemic.
  • We continue to think that the challenges facing regional banks are likely contained, though near-term market volatility is always possible.
  • Regional bank valuations have not fully recovered, and many investors remain on the sidelines.

The bottom line: We continue to think that regional banks do not pose a systemic risk. Investors may benefit from using any unforeseen periods of market volatility to close any regional bank underweights.

U.S. equity markets have been on an impressive winning streak in 2024, with the S&P 500 repeatedly breaking through all-time highs. With all the market excitement today, it can be hard to believe that it’s only been around a year since the failure of two large regional banks in the U.S.: Silicon Valley Bank and Signature Bank. In this article, we’ll take an updated look at the state of the U.S. regional banking system, and why we continue to believe that investors should not be worried about systemic risks in regional banking. We’ll also discuss how our underlying money managers view opportunities in the regional banks and in small cap equities in general.