Did the stress tests spell doom for small-cap bank stocks?


For much of this year, shares of small and mid-size banks outperformed those of bigger lenders. With the financial industry in turmoil and some of its largest players seemingly on the brink, investors flocked to regional and community banks that weren't as exposed to the fallout from risky bets on complex instruments like collateralized debt obligations and credit default swaps.

All that changed on April 9. That day, the KBW Bank Index, which tracks the stocks of 24 big financial institutions, including Bank of America (BAC), JPMorgan Chase (JPM), and Wells Fargo (WFC), zoomed past the KBW Regional Banking Index, which comprises 50 smaller banks ranging in size from Valley National Bancorp (VLY), with a market cap of $1.6 billion, to UCBH Holdings (UCBH), with just $158 million worth of shares trading.