Should You Invest in Bank Stocks?

The largest U.S. banks have a long slog ahead. But small banks may be worth a look.

The recent downgrading of 15 banks by Moody’s Investors Service was neither the beginning nor the end of troubles for the sector. Investors may want to steer away from the largest banking companies until the global economy and the U.S. regulatory outlook grow clearer. But they may want to take a look at regional and community banks, whose stocks are cheap and which don’t face the same problems that weigh on their bigger brethren.

Moody’s took aim at U.S. and international banks with overseas investment-banking operations, particularly trading. The rating agency cited the volatility and risks inherent to the business. The list of firms whose ratings were slashed included five of the largest U.S. banks: Bank of America (symbol BAC), Citigroup (C), Goldman Sachs Group (GS), JPMorgan Chase (JPM) and Morgan Stanley (MS).

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Elizabeth Leary
Contributing Editor, Kiplinger's Personal Finance
Elizabeth Leary (née Ody) first joined Kiplinger in 2006 as a reporter, and has held various positions on staff and as a contributor in the years since. Her writing has also appeared in Barron's, BloombergBusinessweek, The Washington Post and other outlets.