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Dodd-Frank Rollback Optimism Hands Bank ETFs Record Inflows

The SPDR S&P Regional Banking ETF, ticker KRE, took in $606 million, while the SPDR S&P Bank ETF, ticker KBE, absorbed $323 million.

By Rachel Evans

(Bloomberg) --Bank exchange-traded funds are benefiting from a plan to loosen crisis-era regulation before it has even become law.

Two funds run by State Street Corp. saw their biggest one-day inflows on record this week after senators passed a bill aimed at rolling back some the 2010 Dodd-Frank Act. The SPDR S&P Regional Banking ETF, ticker KRE, took in $606 million, while the SPDR S&P Bank ETF, ticker KBE, absorbed $323 million.

“While the Senate bill is more a recalibration of Dodd-Frank than a sweeping overhaul, we view the passage as a clear positive for regional players,” Gerard Cassidy, an analyst with RBC Capital Markets, wrote in a note Wednesday.

Dodd-Frank was designed to make banks safer after subprime mortgages brought down parts of the financial system. Under the Senate proposal, small banks would be exempt from the Volcker Rule on trading for their own books, and would have fewer reporting requirements than larger lenders. However, the bill can’t become law unless the House of Representatives passes a similar measure.

That hasn’t stopped investors from piling into ETFs that own financials, particularly smaller institutions that are most likely to benefit.

The iShares U.S. Broker-Dealers & Securities Exchanges ETF, ticker IAI, has also taken in almost $80 million over the last week, including its biggest daily inflow since 2014. Financials have benefited this year from investor appetite for a sector likely to benefit from interest-rate increases by the Federal Reserve, with the S&P 500 sector index advancing 3.2 percent.

“We believe this bill is broadly positive for regional banks and trust banks while offering little help to the mega banks,” Jaret Seiberg, a senior policy analyst at Cowen & Co. wrote in a note on Thursday.
  
--With assistance from Felice Maranz.To contact the reporter on this story: Rachel Evans in New York at [email protected] To contact the editors responsible for this story: Jeremy Herron at [email protected] Dave Liedtka, Joanna Ossinger

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