The Xchange Blog

Will Regional Banks be Great Again?

If there is one sector that has experienced the greatest benefit from the rising tides of the current bull market, it is financials. The whole sector has seen a 20 percent rally since the election, and is up nearly 50 percent year-over-year. But it’s not just the multi-billion dollar institutions that have ridden this wave. Smaller regional banks have also outperformed.

It’s not exactly a secret that the bank stocks were some of the hardest hit after the financial crisis, but that seems so long ago. This rally in the financials has even come at a time of relative instability for the industry, as banks are having to compete with an emerging fintech sector and deal with the burden of greater regulation under Dodd-Frank. Unsurprisingly, a lot of the fallout has made its way to the smallest community banks, as 25 percent of small banks have either closed or been acquired in the last decade, according to the FDIC.

The Bull Case

Now may be a good time to be a regional bank. The S&P Regional Banks Select Industry Index (SPSIRBKT)—which is tracked by the Direxion Daily Regional Banks Bull 3X Shares ETF (DPST) and Direxion Daily Regional Banks Bear 3X Shares ETF (WDRW)— is up nearly 25 percent since the beginning of November. The S&P 500 Index is only up around 15 percent during this time.

Regional Banks Index (7/22/2017 – 5/8/2017)
Regional Banks ETF Index
Source: Bloomberg. One cannot directly invest in an index.


This strength can primarily be pinned on President Trump’s promises of deregulation and tax reform, although both have been slow to come to fruition due to legislative resistance.

Look no further than the President’s recent mention in an interview with Bloomberg that he was considering breaking up the big banks. While the comment momentarily shook the industry’s biggest players—Bank of America, JP Morgan, and Citigroup all saw sudden volatility— it was another in a continuing series of positive sentiments for regional banks.

The Bear Case

While the current administration has shown that, above all else, nothing is guaranteed, and any change to banking regulation would likely take years to materialize, many think the time is now in the regional banking space. But then again, maybe not.

Although regional banks seem to be positioned well for a run, there’s something on the horizon that may be troublesome. Auto loans could be a headwind. March U.S. light vehicle sales of 16.5 million came in below the 17.25 million estimate, down from January and February figures of 17.5 million. Auto loans have been one of the fastest-growing lending categories since the financial crisis. Banks have accelerated the number of these loans in an effort to seek more revenue as the mortgage market slumped. Should lower sales become a trend, regional banks may suffer.


Related Funds:


Performance (as of 3/31/2017)

* The Net Expense Ratio includes management fees, other operating expenses and Acquired Fund Fees and Expenses. If Acquired Fund Fees and Expenses were excluded, the Net Expense Ratio would be 0.95%. The Funds’ Adviser, Rafferty Asset Management, LLC (“Rafferty”) has entered into an Operating Expense Limitation Agreement with each Fund, under which Rafferty has contractually agreed to cap all or a portion of its management fee and/or reimburse each Fund for Other Expenses through September 1, 2018, to the extent that the Fund’s Total Annual Fund Operating Expenses exceed 0.95% of the Fund’s daily net assets other than the following: taxes, swap financing and related costs, acquired fund fees and expenses, dividends or interest on short positions, other interest expenses, brokerage commissions and extraordinary expenses. If these expenses were included, the expense ratio would be higher.

The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate. An investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted. Returns for performance under one year are cumulative, not annualized. For the most recent month-end performance please visit the funds website at

Short-term performance, in particular, is not a good indication of the fund’s future performance, and an investment should not be made based solely on returns. Because of ongoing market volatility, fund performance may be subject to substantial short-term changes. For additional information, see the fund’s prospectus.

Risks of the Fund – An investment in each Fund involves risk, including the possible loss of principal. The ETFs are non-diversified and include risks associated with concentration that results from the Funds’ investments in a particular industry, sector, or geography which can increase volatility. The use of derivatives such as futures contracts and swaps are subject to market risks that may cause their price to fluctuate over time. The Fund does not attempt to, and should not be expected to, provide returns which are three times the performance of their underlying index for periods other than a single day. Risks of each Fund include Effects of Compounding and Market Volatility Risk, Leverage Risk, Counterparty Risk, Intra-Day Investment Risk, risks specific to investment in securities in the Banking Industry and Financials Sector, for the Direxion Daily Regional Banks Bull 3X Shares, Daily Index Correlation/Tracking Risk and Other Investment Companies (including ETFs) Risk, and for the Direxion Daily Regional Banks Bear 3X Shares, Daily Inverse Index Correlation/Tracking Risk and risks related to Shorting and Cash Transactions. Please see the summary and full prospectuses for a more complete description of these and other risks of each Fund.

S&P Regional Banks Select Industry Index – SPSIRBKT is a modified equal-weighted index that is designed to measure performance of the stocks comprising the S&P Total Market Index that are classified in the Global Industry Classification Standard (GICS) regional banks sub-industry. One cannot directly invest in an Index.