The Daily Breakdown’s Deep Dive: Regional Banking Worries

JPMorgan’s Jamie Dimon is calling out cockroaches when it comes to credit risk. The Daily Breakdown dives into regional banks.

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Deep Dive

A Brief History

In March 2023, a regional banking scare had Wall Street holding its breath. The fallout was mainly triggered by three regional banks: Silicon Valley Bank, Signature Bank and First Republic Bank. 

From its February high to the March low, the S&P 500 fell about 10%. However, the KRE ETF — the largest regional banking ETF by AUM and trading volume — fell more than 36%, ultimately bottoming a few months later in May with shares down almost 50% from the February high. 

What’s Happening Now

In September, auto-parts dealer First Brands filed for bankruptcy, revealing $10 to $50 billion in off-balance-sheet liabilities. The collapse, alongside subprime lender Tricolor’s failure, rattled confidence in private credit markets and led to equity market volatility. Banks have acknowledged some of this exposure, with the broader fallout triggering more than $300 million in charge-offs and bringing renewed scrutiny of hidden lending exposures across the financial sector.

It prompted JPMorgan CEO Jamie Dimon to state: “When you see one cockroach, there are probably more, and so everyone should be forewarned of this one.” 

My colleague Lale Akoner had a very succinct takeaway: 

“We see the October credit events as idiosyncratic blowups, not systemic fractures. Both companies operated in narrow, high-risk corners of the market…Losses were real, but concentrated. Critically, most regional banks showed limited or fully reserved exposure, with no signs of widespread credit deterioration.” 

Looking Forward

Despite these recent events potentially triggering some good old-fashioned PTSD amongst investors — mainly memories of the 2008 financial crisis and the regional banking hiccup a few years ago — banks are actually doing pretty well right now. At least, operationally. 

Large banks like JPMorgan, Citigroup, Wells Fargo, and others reported robust earnings earlier this month. On the regional side, strong results from banks like Ally Financial, US Bancorp, PNC, Citizens, Truist, and others should give long-term investors some reassurance that we’re not on the brink of another financial crisis.  

Stock-performance wise, it’s a little different. While the XLF ETF — the largest financials ETF by AUM and trading volume — is down just 3.6% from its recent high, the KRE is down about 10%. Clearly, there are some jitters right now. While things seem relatively contained, it’s something to keep an eye on moving forward.

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The Setup — XLF ETF

Looking at the XLF ETF, the trend remains quite strong since it was able to break out over the $42 level in mid-2024. Since then, the XLF successfully retested this level, holding it as support in April 2025. 

The financial space has experienced a strong rally from the April lows and momentum has been cooling lately despite a round of pretty solid earnings. From here, technical investors likely want to see the $50 to $52 area ultimately act as support, keeping the current uptrend intact. In that scenario, it could set up for a bounce, while failure to find support could usher in more selling pressure. 

Options

As of October 23rd, the options with the highest open interest for XLF — meaning the contracts with the largest open positions in the options market — were the December $55 calls, followed by the January 2026 $50 puts. 

For options traders, calls or bull call spreads could be one way to speculate on additional upside, while puts or put spreads could be one way to speculate on a mover lower. Options buyers limit their risk to the price paid for the options or options spreads.

For those looking to learn more about options, consider visiting the eToro Academy.

Disclaimer:

Please note that due to market volatility, some of the prices may have already been reached and scenarios played out.