KBW Bank Index: Tracking US Banking Sector Performance

The KBW Bank Index serves as a benchmark that is used to track the performance of leading banking institutions and publicly-traded assets in the United States. The KBW Index comprises 24 banking equities/stocks that represent regional banks, thrift institutions, and/or national money centers in the United States. Hence, the Index serves as a benchmark for the performance of the banking sector.

The KBW Index derives its name from Keefe, Bruyette & Woods Inc., abbreviated as “KBW.” KBW Inc. is an investment bank, whose specialty lies in the financial sector.

Summary

• The KBW Bank Index serves as a benchmark that is used to track the performance of leading banking institutions and publicly-traded thrifts in the United States. 
• The Index comprises 24 banking equities/stocks that represent thrift institutions, regional banks, and/or national money centers in the United States. Essentially, the components are weighted according to a measure of market capitalization, adjusted for a banking institution’s share price.
• The KBW Index derives its name from Keefe, Bruyette and Woods Inc., shortened to the acronym “KBW.” KBW Inc. is an investment bank that specializes in the financial sector.

Keefe, Bruyette & Woods Inc.

Keefe, Bruyette & Woods Inc., a subsidiary of Stifel Financial, was founded in 1962 and is headquartered in New York, U.S. The investment banking firm exclusively specializes in financial services, and its key business areas are equity and debt capital markets, asset management, corporate finance, equity trading, and research.

KBW Inc.’s clientele consists of real estate companies and REITs, banking institutions, insurance companies, asset management firmsAsset Management Company (AMC)An asset management company (AMC) is a firm that invests a pooled fund of capital on behalf of its clients. The capital is used to fund different, mortgage banks, and other specialty finance entities, etc. The company was founded by Harry Keefe Jr., Gene Bruyette, and Norbert Woods. The trio had worked together at “Tucker, Anthony & R. L. Day.”

At present, Keefe, Bruyette & Woods Inc. oversees an office in London (United Kingdom) and nine offices in the United States. KBW was acquired by Stifel Financial in 2013 for $575 million.

Breaking Down the KBW Bank Index

The KBW Bank Index is focused primarily on banking and its components are selected by a committee consisting of five individuals. Four of the committee members are employees of KBW, while the fifth member is an employee of the NASDAQ ExchangeNASDAQThe NASDAQ is a U.S.-based stock market exchange and the second-largest stock exchange by market cap globally.. The committee gathers every quarter and their selection standards attempt to duplicate some industry, market, and geographical categories via selecting among the leading financial institutions that fulfill the initial eligibility requirements.

The Index emphasizes the banking sector while limiting emphasis on insurance or investment-related components. The Index makes use of a “float-adjusted, revised-market capitalization-weighting” process. Essentially, the Index’s components are weighted according to a measure of market capitalizationMarket CapitalizationMarket Capitalization (Market Cap) is the most recent market value of a company’s outstanding shares. Market Cap is equal to the current share price multiplied by the number of shares outstanding. The investing community often uses the market capitalization value to rank companies, adjusted for a banking institution’s share price. According to Finance Reference, the KBW Bank Index is “mathematically based on a tenth of the value of the Keefe, Bruyette and Woods Index (KBWI).”

As of October 1991, the Index’s initial value was set to 250 and it was first listed on the Philadelphia Stock Exchange or PHLX (later acquired by NASDAQ). Because the Index originally went live on the PHLX, it is also sometimes referred to as the PHLX/KBW Bank Index, and the Index is calculated and disseminated every second under the symbol “BKX,” during a normal trading day.

The KBW Bank Index was considered the standard benchmark for the banking sector for many years. However, with the introduction and use of new indicesStock Market IndexA stock market index, also known as a stock index, measures a section of the stock market. In other words, the index measures the change in and benchmarks, it is no longer the only or primary indicator for banks. ETF versions of the Index, such as the PowerShares KBW Bank ETF (KBWB), are now available.

KBW Bank Index Components

The following are the individual KBW Index components as of June 2020:

• Bank of America (BAC)
• Citigroup (C)
• JP Morgan Chase (JPM)
• Wells Fargo & Co (WFC)
• SVB Financial Group (SIVB)
• Capital One Financial (COF)
• Citizens Financial Group (CFG)
• Bank of NY Mellon (BK)
• Keycorp (KEY)
• First Horizon National Corporation (FHN)
• Fifth Third Bank (FITB)
• People’s United Financial (PBCT)
• Zion’s Bancorp (ZION)
• Northern Trust (NTRS)
• Comerica (CMA)
• PNC Financial Services (PNC)
• Huntington Bancshares (HBAN)
• Regions Financial (RF)
• US Bancorp (USB)
• M&T Bank (MTB)
• State Street (STT)
• First Republic Bank (FRC)
• First Horizon National Corporation (FHN)

  Truist Financial Corp (TFC)

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