From 24/7 Wall St. · Omor Ibne Ehsan · · 1m
KRE ETF Drops 36% in 2023, Rate Hike Shock Looms
KRE ETF lost 36% in five weeks in 2023 as regional banks faced collapse risks. Another rate hike could trigger similar losses.
In brief
KRE ETF lost 36% in five weeks in 2023 as regional banks faced collapse risks. Another rate hike could trigger similar losses. KRE ETF dropped 36% in five weeks in 2023 after regional bank failures; a new rate hike may cause similar market shocks. Originally reported by 24/7 Wall St..
KRE ETF Decline
KRE ETF dropped 36% in five weeks from march to may 2023.
“KRE fell from $55.28 on march 1, 2023, to $35.50 by may 31, 2023”
Current Rate Hike
Fed raised rates to 4% on september 16, 2026, triggering new market concerns.
“On september 16, 2026, the federal open market committee raised the target range for the federal funds rate to 4 percent”
KRE's Structure
KRE is an equal-weight fund with concentrated risk exposure.
“KRE is an equal-weight sector fund, and the holdings show it”
Shared Bank Risks
All regional banks face deposit competition and credit cycle risks together.
“Every bank faces the same deposit competition, securities marks, commercial real estate exposure, and borrower credit cycle at the same time”
2023 vs. Now
Uninsured deposits down, but securities losses remain from higher yields.
“Uninsured deposit shares at surviving regional banks have generally declined as customers spread cash across institutions and money-market funds”
Rate Hike Impact
A flatter yield curve may force banks to pay higher deposit rates.
“The 10-year minus 2-year spread has compressed to a quarter point, which offers little cushion above inversion”
What Happens Next
KRE's value depends on deposit behavior over the next two quarters.
“The deciding variable is deposit behavior over the next two quarters. If betas stay tame at the current fed range, the bull case holds”
Here's the gist
KRE ETF dropped 36% in five weeks in 2023 after regional bank failures; a new rate hike may cause similar market shocks.
