ABA Bank Index
What Is the ABA Bank Index?
The ABA Bank Index is a stock index contained community and regional banks. The American Bankers Association (ABA) made the index to address smaller institutions inside the banking industry, as opposed to the KBW Banking Index that tracks larger banks. The ABA Bank Index is distributed on the Nasdaq under the symbol ABAQ.
Understanding the ABA Bank Index
The ABA Bank Index, short for the ABA NASDAQ Community Bank Index, is co-supported by the American Bankers Association, the trade association and campaigning arm of the U.S. banking industry. The ABA addresses community, regional and large national banks that together hold about $17 trillion in deposits and have issued more than $11 trillion in loans.
The association made the ABA Index in 2003 to promote the community banking industry. Two adaptations of the index are calculated for total return and price return. The ABAQ is weighted by market capitalization and comprises of in excess of 300 community banks.
ABAQ is one of three branded ABA indices. The others are the NASDAQ OMX ABA Community Bank Index (ABQI) and the ABA NASDAQ Community Bank Total Return Index (XABQ). ABQI, sent off in 2009, tracks the most actively traded community banks in the ABAQ. Investors can gain exposure to the ABQI through the First Trust Nasdaq ABA Community Bank Index Fund (QABA). XABQ is the ABA's total return index, the performance of which incorporates both price appreciation and reinvestment of all cash distributions paid by index constituents.
Significance of the ABA Bank Index
Community banks play important capabilities in supporting neighborhood economies across the United States. Most give commercial lending geared to small and mid-market organizations, too consumer loans, mortgages and deposit accounts. The community bank industry has been going through consolidation for a long time, with the number of independent banks falling consistently. This has permitted the leftover banks to exploit economies of scale to bring down costs and deliver services all the more productively.
As investments, small and fair sized banks have several impetuses working in support of themselves. In 2016, the Federal Reserve started raising short-term interest rates, which supported net interest margins at banks, yet this turned around course in mid 2020 as the Fed brought down rates.
The industry is additionally profiting from decreased regulation, which brings down compliance costs; the bringing down of the corporate tax rate to 21% under the Tax Cuts and Jobs Act; as well as accretive mergers and acquisitions. An extending U.S. economy has additionally been strong of sound loan growth. Notwithstanding these drivers of stock price appreciation, numerous community banks pay an ordinary dividend.
- The ABA Bank Index is a stock market index that tracks publicly traded community and regional banks.
- Other ABA indices incorporate the NASDAQ OMX ABA Community Bank Index and the ABA NASDAQ Community Bank Total Return Index.
- The index is listed on the NASDAQ under the ticker ABAQ and incorporates in excess of 300 banks.