What is the KBW Bank Index?
The KBW Bank Index is a authoritative stock index representing the banking sector. Developed initially by the investment bank Keefe, Bruyette, & Woods (KBW), it acts as a barometer for the financial sector, encompassing a weighted selection of 24 major banking stocks that are indicative of this industry group.
Key Insights into the KBW Bank Index
- The KBW Bank Index monitors stock prices of key banking institutions, serving as a trendsetter for the industry.
- Established in 1991, the index has a long-standing history of tracking banking stock performance.
- It includes 24 banking stocks chosen from major regional and nationwide banking firms.
Demystifying the KBW Bank Index
The KBW index employs a float-adjusted modified-market capitalization-weighting method. The selection process is overseen by a committee including four KBW staff and one Nasdaq employee, meeting quarterly. Their criteria are designed to mirror specific market, industry, and geographical segments by choosing the largest qualified banking firms. Importantly, this index specifically targets banking stocks while minimizing emphasis on insurance-heavy or investment-focused components.
Constituents of the KBW Bank Index
As of May 2021, the KBW Bank Index included prominent financial entities such as:
- 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)
The Rich History of KBW Bank Index
Launched at the Philadelphia Stock Exchange (PSE) in 1991, the KBW Bank Index experienced a new chapter when PSE was acquired by Nasdaq. Often still dubbed the PHLX/KBW Bank Index, it began with an inception value set at 250. Options started trading by September 1992. Throughout the typical trading day, the index is continuously calculated and disseminated under the symbol BKX.
For a substantial period, the KBW Bank Index stood as the standard metric for banking sector performance and was heavily traded before the advent of exchange-traded funds (ETFs). While it remains pivotal, various ETFs now exist, mimicking and providing easier tradability of its components, such as the Invesco KBW Bank ETF (KBWB).
Balancing Large Banks and Regional Banks
While the KBW Bank Index substantiates its credibility by showcasing large-capitalization stocks, it specifically excludes smaller regional banks. This divergence points to the need for investors to supplement their analysis with indices or ETFs like the Invesco KBW Regional Bank Index (KBWR) for a balanced representation of the broader banking industry.
Related Terms: benchmark index, financial sector index, Nasdaq, ETF, regional banks.
References
- Nasdaq Global Indexes. “KBW Nasdaq Bank Index Methodology”, Page 1.
- Nasdaq Global Indexes. “KBW Nasdaq Bank Index (BKX)”.
- Nasdaq Global Indexes. “KBW Nasdaq Bank Index Methodology”, Page 2.
- Nasdaq Global Indexes. “KBW Nasdaq Bank Index (BKX): Weighting”.
- U.S. Securities and Exchange Commission. “Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change by the Philadelphia Stock Exchange, Inc. Relating to the Change in Weighting Methodology of the Phlx / KBW Bank Index” , Page 3.
- Nasdaq Global Indexes. “KBW Nasdaq Bank Index Methodology”, Page 3.
