Some good news for small banks. Financials are some of the first beneficiaries in investors’ minds as they contemplate the imminent end of the Fed’s zero-interest-rate policy, but not all financials are created equal. We believe that the largest financial institutions will continue to face intense regulatory scrutiny and that they are not “out of the woods.” On the other hand, we note that Fed Chair Yellen’s recent statements show that she understands that smaller banks deserve some relief from the regulatory burden that has been placed indiscriminately on banks of all sizes since the financial crisis. We continue to prefer smaller and regional banks for exposure to the financial sector as the first rate rise draws closer.
