A Guide to Investing in Regional Bank ETFs

Commercial real estate risks are returning for regional banks in 2024.

Research Lead
Reviewed by: etf.com Staff
Edited by: James Rubin

Regional bank ETFs are back in the national spotlight in 2024 as New York Community Bancorp (NYCB) reported increased stress in its commercial real estate portfolio, evoking memories of the 2023 regional bank crisis. 

In that crisis, a sudden loss of confidence triggered bank runs at three mid-sized U.S. banks, causing their collapse and raising fears of wider contagion.  

Does the short-term volatility present an opportunity to buy shares of regional bank funds, or should investors look elsewhere for buying opportunities? 

In this guide, we dive into how regional bank ETFs work, what bank stocks they hold and the associated pros and cons of investing in them in 2024.  

What Is a Regional Bank ETF?

A regional bank ETF is an exchange-traded fund that aims to track the performance of an index composed of regional bank stocks. Regional banks are financial institutions that operate within a specific geographic region, often serving local communities and smaller markets compared to national banks.  

Therefore, a regional bank ETF provides investors with a way to gain low-cost, diversified exposure to a portfolio of regional bank stocks without having to individually select and purchase these stocks. 

What Stocks Do Regional Bank ETFs Hold?

Regional bank ETF stock holdings primarily consist of U.S. regional banks, such as savings and loan banks or credit unions, that operate within a specific geographic region and with assets ranging from $10 billion to $100 billion.  

Here are examples of regional bank stocks held in regional bank ETFs: 

  • Citizens Financial Group, Inc. (CFG) 
  • Truist Financial Corporation (TFC) 
  • Zions Bancorporation, N.A. (ZION) 
  • Regions Financial Corporation (RF) 
  • Huntington Bancshares Incorporated (HBAN) 
  • Webster Financial Corporation (WBS) 
  • Commerce Bancshares, Inc. (CBSH) 
  • Cullen/Frost Bankers, Inc. (CFR) 
  • Prosperity Bancshares, Inc. (PB) 
  • New York Community Bancorp Inc (NYCB) 

The Largest Regional Bank ETFs by Total Assets 

KRESPDR S&P Regional Banking ETF$3.1B0.35%21.89%-20.87
IATiShares Regional Banks ETF$683.5M0.40%26.89%-21.21
DPSTDirexion Daily Regional Banks Bull 3X Shares$632.9M0.93%60.76%-72.53
KBWRInvesco KBW Banking ETF$59.8M0.35%19.89%-13.19

Data as of February 1, 2024. Note that DPST is a leveraged ETF, which is much riskier than a traditional ETF.

The 2023 Regional Banking Crisis and ETFs

The 2023 regional banking crisis led to the failure of a number of banks, most notably Silicon Valley Bank (SVB) and First Republic Bank (FRCB). Regional bank ETFs took a significant hit after the crisis. For example, the SPDR S&P Regional Banking ETF (KRE) fell by more than 30% in the weeks following the collapse of SVB.  

The decline in regional bank ETFs was also part of a broader sell-off in the stock market as fears of contagion quickly reverberated through the financial sector and beyond. Investors were worried about the global economy and the potential for a recession, which led to selling pressure across all asset classes.  

Despite interventions, the event rattled the industry and prompted calls for stricter regulations and deposit insurance reform. 

However, once the crisis appeared contained, KRE and other regional bank ETFs significantly recovered. From its post-crisis low on May 4, through its recent high on Dec 14, 2023, KRE was up 50%. However, as of Feb. 2, 2024, the KRE’s price remained below its all-time high set in Jan. 2022.  

The Pros & Cons of Investing in Regional Bank ETFs

Regional bank ETFs provide investors with many potential benefits, including long-term growth, but investors should also consider the associated risks, including interest rate risk and regulatory risk.  

Here are some of the pros and cons of investing in regional bank ETFs:  


  • Potential for growth: Regional banks can be a good investment if you believe that the economy is going to grow. This is because regional banks tend to do well when the economy is growing, as they can lend more money and earn more profits.  
  • Diversification: Regional bank ETFs offer diversification by investing in a basket of regional banks. This can help reduce risk, as it is less likely that all of the banks in the ETF will experience problems at the same time.  
  • Liquidity: Regional bank ETFs are typically very liquid, which means that they can be easily bought and sold. This can be important for investors who need to access their money quickly.  
  • Low fees: Regional bank ETFs typically have low fees compared to actively managed funds, which can help boost returns.  


  • Interest rate risk: Regional bank ETFs are exposed to interest rate risk, which is the risk that the value of the ETF will decline if interest rates rise or remain high for several quarters. This is because higher interest rates increase the cost of borrowing and can place strain on smaller banks’ ability to lend.  
  • Credit risk: Regional bank ETFs are also exposed to credit risk, which is the risk that a borrower will default on a loan. This can lead to losses for the ETF if a bank’s borrowers default on large loans.  
  • Liquidity risk: Regional bank ETFs can be illiquid in times of market stress. This means that selling your shares at a fair price may be difficult.  
  • Regulation risk: Regional bank ETFs are exposed to regulatory risk, which is the risk that new regulations will be implemented that negatively affect the performance of the ETF.  

Risks to Commercial Real Estate and Regional Banks in 2024

Today’s higher interest rates increase borrowing costs for new development and refinancing existing loans, pressuring margins and profitability for commercial real estate companies. Changing work-from-home trends in the post-Covid environment have decreased demand for office space, leading to higher vacancies and further stressing cash flow and profitability. 

A recent 60 Minutes report revealed that more than 95 million square feet of New York office space—the equivalent of 30 Empire State Buildings—is currently unoccupied. 

The severity of these risks in 2024 will depend heavily on the broader economic landscape. Risks may vary depending on the specific location and property type, with some markets more vulnerable than others. 

While these risks are significant, the commercial real estate market is complex and multifaceted. Careful due diligence, portfolio diversification, and proactive management strategies can help mitigate these risks and potentially create opportunities for investors in 2024. 

Bottom Line on Regional Bank ETFs for 2024

Regional bank ETFs have significant growth potential over the long term; however, they may face more downside pressure in the short term, especially if the economy continues to slow while interest rates remain elevated. Therefore, with a long-term outlook and high tolerance for risk, an investor can enter a new position after understanding the potential for short-term volatility.  

As always, understanding the risks involved before investing in any ETF is crucial.

Kent Thune is Research Lead for etf.com, focusing on educational content, thought leadership, content management and search engine optimization. Before joining etf.com, he wrote for numerous investment websites, including Seeking Alpha and Kiplinger. 


Kent holds a Master of Business Administration (MBA) degree and is a practicing Certified Financial Planner (CFP®) with 25 years of experience managing investments, guiding clients through some of the worst economic and market environments in U.S. history. He has also served as an adjunct professor, teaching classes for The College of Charleston and Trident Technical College on the topics of retirement planning, business finance, and entrepreneurship. 


Kent founded a registered investment advisory firm in 2006 and is based in Hilton Head Island, SC, where he lives with his wife and two sons. Outside of work, Kent enjoys spending time with his family, playing guitar, and working on his philosophy book, which he plans to publish in the coming year.