Industry Voice: What Does the Stress in Regional Banking Mean for US Smaller Companies?

For smaller company investors, the stress in the US banking sector is acutely relevant given that regional banks represent a key component of the investment universe.

clock • 3 min read
Industry Voice: What Does the Stress in Regional Banking Mean for US Smaller Companies?

Key points

  • The impact of recent failures in the U.S. banking sector, and the rapid withdrawal of deposits across some regional U.S. banks, has been profound.
  • For smaller company investors, the stress in the U.S. banking sector is acutely relevant given that regional banks represent a key component of the investment universe.
  • While the recent crisis has been destabilizing, at this stage, few regional banks appear to be exposed to similarly severe liquidity and/or concentration risk.

The impact of recent failures in the US banking sector, and the rapid withdrawal of deposits across some other regional US banks, has certainly been destabilising—not only for the industry, but also for the broader US equity market. Nowhere has this been more acutely relevant than for US small‑ and mid‑cap company investors, given that regional banks represent such a major component of the investment universe.

However, based on our detailed analysis, we are comfortable, at this stage, that few regional banks are exposed to the kind of severe liquidity and concentration risk as experienced by SVB and, latterly, FRC. Accordingly, we are finding attractive opportunities where better‑quality banking stocks have been oversold relative to their idiosyncratic risks. We continue to maintain a broad exposure to small‑ and mid‑cap US banks, diversifying both the risk and reward potential offered by this attractive subset of the US equity market.

 

 

This post was funded by T. Rowe Price

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Key points

  • The impact of recent failures in the U.S. banking sector, and the rapid withdrawal of deposits across some regional U.S. banks, has been profound.
  • For smaller company investors, the stress in the U.S. banking sector is acutely relevant given that regional banks represent a key component of the investment universe.
  • While the recent crisis has been destabilizing, at this stage, few regional banks appear to be exposed to similarly severe liquidity and/or concentration risk.

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