This past March, the U.S. banking sector began to show cracks in its system with Silicon Valley Bank, Signature Bank and eventually First Republic Bank all either failing or toppling. Now, with the crisis seemingly in the rearview, U.S. News & World Report interviewed Dan Tolomay, chief investment officer of Trust Company of the South, to find out what investors need to know as the banking sector finally begins to rebound.
According to Tolomay, investors holding exchange-traded funds, also known as ETFs, with a high exposure to the financial sector suffered higher-than-expected losses following the banking crisis. “The more concentrated or homogenous the holdings of an ETF, the more impact bad news hitting a particular industry or large industry player will have on it,” he explains.
However, even as the banking sector rebounds, Tolomay tells the publications that investors should still avoid investing assets into smaller banks. Even after U.S. banking regulators took major steps to limit contagion, the small bank sector will still likely face many challenges ahead.
“Big banks have the perceived safety of being deemed ‘too big to fail,’ while smaller banks are not viewed as key to the financial system and may not receive a lifeline in a serious crisis,” Tolomay says. “Thus, there is the risk that deposit flight from small to big banks could cause stress on the former.”
Click here to read the entire U.S. News & World Report article.
