Why it might be time to buy banks

Who wouldKBW SP want to own shares in a bank? Rising interest rates should have been a blessing, lifting the income they can earn on assets. But a few banks that had lent and invested freely at rock-bottom rates faced runs, which pushed up funding costs for the rest. More may yet fail. And new regulations, ominously named Basel 3 “endgame” rules, could raise the capital requirements on some American banks by as much as a quarter if they are introduced in their current form in 2025. This would scupper any chance that shareholders can be paid much out of profits, perhaps for years.Nasty stuff. Indeed, the index of large American bank stocks has shed 15% this year, even as American stocks have risen by 19%. This underperformance, after a decade of mediocrity, means that banks now make up less than 5% of the & 500 index of large American firms. Blackstone, a private-markets giant, has a market capitalisation 20% bigger than that of Goldman Sachs. Just about any measure of valuation shows banks to be at or near an all-time low.