What is the KBW Bank Index, and how does it work?

FinanceFinance ManagementBanking & Finance

The KBW Bank Index is a stock market index that measures the performance of the banking industry. Investment bank Keefe, Bruyette and Woods, that have a strong presence in the financial industry, created this index. It is consisted of a weighted average of 24 banking stocks that have been recognized leading indicators for this business group. The equities stand for significant national wealth development banks, regional banks, and savings organizations established in the United States of America.

Below is an example of the past year data of Nasdaq KBW Bank Index

Source − BloombergMarkets

Key Points Summary

  • KBW Index keeps an account of the 24 most noteworthy banking organisations in the world and it has now become a indicator for banking industry.

  • The index was established in 1991, and it continues to be in use today.

  • KBW index comprises of 24 banking stocks from the biggest state and national level baking organizations.

What are the key components of KBW Index?

The KBW Bank Index examines the stock prices of significant banking businesses in an effort to serve as a leading indicator for those interested in the banking sector.

It employs a modified-market capitalization-weighting approach that has been float-adjusted for inflation. KBW workers (4 KBW employees and one full-time employee of the Nasdaq exchange) serve on a committee that selects the index components on a quarterly basis. Because they are picking from among the biggest financial businesses that match the original qualifying requirements, they are attempting to recreate particular market, industry, and geographic groupings.

With its core emphasis on the financial and banking sector, especially on the insurance industry. It includes most of the major banking branches as of 2021. All the banks that are part of the KBW index are listed below.

  • Bank of NY Mellon (BK)

  • Bank of America (BAC)

  • Capital One Financial (COF)

  • Citigroup (C)

  • Citizens Financial Group (CFG)

  • Comerica (CMA)

  • Fifth Third Bank (FITB)

  • First Horizon (FHN)

  • First Republic Bank (FRC)

  • Huntington Bancshares (HBAN)

  • JP Morgan Chase (JPM)

  • Keycorp (KEY)

  • M&T Bank (MTB)

  • Northern Trust (NTRS)

  • PNC Financial Services (PNC)

  • People's United Financial (PBCT)

  • Regions Financial (RF)

  • Signature Bank (SBNY)

  • State Street (STT)

  • SVB Financial Group (SIVB)

  • Truist Financial Corp (TFC)

  • US Bancorp (USB)

  • Wells Fargo & Co (WFC)

  • Zion's Bancorp (ZION)

KBW Index & NASDAQ Review’s Impact

There are currently exchange-traded funds (ETFs) that track the index, notably the PowerShares KBW Bank ETF, which trades under the ticker name KBWB. Due to the necessity to accommodate any redemption of shares, no ETF can achieve perfect association with the underlying index by holding the same mix of component companies as the index; therefore, no ETF can achieve perfect correlation with the index.

The NASDAQ commission examines the composition on quarterly basis in the month’s of March, June, September and December with the view to keep the turnover at a minimum. However, in between the period the company could conduct provisional evaluations if circumstances require it. This mostly occurs under major legal problems for the organizations or when bankruptcy is declared.

Published on 02-Jul-2021 07:07:00