KBW Bank Index

What is the KBW Bank Index?

The KBW Bank Index (symbol: BKX) is a benchmark stock index that tracks the performance of 24 major U.S. banking companies. Created to serve as a bellwether for the banking sector, it represents a mix of large national money-center banks, larger regional banks, and thrift institutions while excluding companies that are primarily insurance- or investment-oriented.

How the index is constructed

• Weighting: Float-adjusted, modified market-capitalization weighting.
• Selection: Components are chosen by an index committee that meets quarterly. The committee’s goal is to represent key market, industry and geographic segments of the banking sector while keeping turnover low.
• Review and adjustments: The committee reviews composition quarterly and may make interim changes for corporate actions such as stock splits, spin-offs, rights issuances, major legal events, or bankruptcies.
• Focus: Emphasizes firms whose primary business is traditional banking; firms heavily involved in insurance or investment banking are generally excluded.

Typical components

The index comprises 24 banking stocks. Examples include:
* Bank of New York 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)
* JPMorgan Chase (JPM)
* KeyCorp (KEY)
* M&T Bank (MTB)
* Northern Trust (NTRS)
* PNC Financial Services (PNC)
* Regions Financial (RF)
* Signature Bank (SBNY)
* State Street (STT)
* SVB Financial Group (SIVB)
* Truist Financial (TFC)
* U.S. Bancorp (USB)
* Wells Fargo & Co (WFC)
* Zions Bancorp (ZION)
* People’s United Financial (PBCT)

(Composition can change over time; consult current index documentation or market data for the latest list.)

Brief history and trading

• Origin: Launched by Keefe, Bruyette & Woods and originally listed on the Philadelphia Stock Exchange.
• Base value: The index was initialized to a value of 250 when it began trading.
• Real-time calculation: The index value is calculated and disseminated continuously during trading hours (updated every second).
• Options: Options on the index began trading soon after its launch, providing a way to trade broad banking exposure before sector ETFs became common.

ETFs and tradable alternatives

ETF products attempt to track the KBW Bank Index by holding the same component stocks. Examples:
* Invesco KBW Bank ETF (KBWB) — tracks the broader KBW Bank Index.
* Invesco KBW Regional Banking ETF (KBWR) — focuses on a regional-bank index for smaller-cap regional banks.

Note: ETFs aim to replicate the index but can’t achieve perfect correlation due to fund expenses and cash flows related to redemptions.

Large vs. regional banks

The KBW Bank Index emphasizes larger, more widely traded banking firms. It captures many national and larger regional banks but does not represent the smaller community banks that make up a distinct tier of the banking sector. Investors seeking exposure to smaller regional or community banks should consider index products or ETFs specifically focused on the regional-bank tier.

Key takeaways

• The KBW Bank Index is a 24-stock benchmark designed to reflect the performance of major U.S. banks.
• It uses a float-adjusted, modified market-cap weighting and is overseen by a committee that seeks to minimize unnecessary turnover.
• Tradable instruments (options and ETFs) linked to the index provide ways to gain sector exposure, but ETF replication is not perfect.
• For a fuller view of the banking industry, complement KBW Index exposure with products that target smaller regional or community banks.