ABA Bank Index Details

The ABA Bank Index is co-developed by America's banking sector through its trade association and official lobbyist, the American Bankers Association. Behind the ABA are national, regional, and community banks with combined deposits of $17 trillion and loan issues worth at least $11 trillion.

In 2003, the ABA decided to publicize the community banking industry, hence the creation of the ABA Index, which is calculated in one version for total return and in another for price return. Composed of at least 300 banks, the ABA bank index is weighted based on market capitalization.

The purpose of the ABA Banking Index is to represent smaller banking institutions (the KBW Banking Index monitors bigger banks) with the following key functions:

  • improving market liquidity and standardizing market valuations
  • monitoring the performance of small banks' stocks by showing the stability of the U.S. economy
  • highlighting the overall importance of having a healthy community banking industry
  • addressing questions and concerns related to banking and finance issues affecting the country

Real World Example of ABA Bank Index

In the early 2000s, the ABA decided to help represent banks in the United States by creating banking indexes, including:

ABA NASDAQ Community Bank Index (ABAQ)

Launched December 2, 2003, the ABA NASDAQ Community Bank Index (ABAQ) represents the most number of community banks in the U.S. Also called the "composite index," it has 367 banks under it with a market capitalization of over $210 billion.

NASDAQ OMX ABA Community Bank Index (ABQI)

Six years after the ABAQ, the ABQI index was launched on June 8 to monitor the performance of the ABAQ's most actively traded banks.

ABA NASDAQ Community Bank Total Return Index (XABQ)

The values of the ABA total return index are reinvested cash distributed among ABAQ index members. Calculations are performed every day that reflect the rise and fall of prices, in addition to the dividends earned by the comprising securities. The ABCX total return index values were aligned with the original index value on December 4, 2003.

The Importance of the ABA Bank Index

Local U.S. economies depend significantly on community banks, most of which offer financial products that help small and medium-sized businesses grow, such as consumer loans and deposit accounts. For years, community bank consolidations were very common, and independent banks became fewer and fewer in number each year. This has given the stronger banks an opportunity to leverage economies of scale as they drive down their costs and increase their efficiency in providing services.

Many factors give an advantage to small and medium-sized banks as investments. The Federal Reserve did start increasing short-term interest rates, which also meant higher net interest margins at banks. However, the beginning of 2020 saw a reversal as the Fed dropped rates because of the Coronavirus pandemic.

Less regulation also works in favor of the industry as it decreases the cost of compliance. With the Tax Cuts and Jobs Act, corporate tax went down to 21%, and there have been accretive mergers and acquisitions as well. The growing U.S. economy has been promoting positive loan growth, and community banks are paying a consistent dividend because of stock price appreciation.

History of The American Bankers Association

The American Bankers Association is the country's biggest banking trade association, representing banks of all asset sizes and charter types. The ABA serves as a consultant to its members, especially in areas of capital management, asset management, risk compliance, insurance, and even staff training. ABA member banks hold about 95% of the banking industry's assets, which have a two million-strong combined workforce.

The ABA holds several responsibilities but none so important as training member organizations, promoting banks and bankers' interests, and conducting research that helps in instituting banking best practices and industry standards. Among its most remarkable accomplishments is the establishment of the nine-digit routing number in 1910. Every check in the U.S. bears a routing number, which is essentially a numbering system that makes for easier and faster bank identification and check processing.

The history of the ABA goes back to the economic depression in North America and Europe, a period known as the Panic of 1873, when a St. Louis, Missouri banker found himself in a bad fix. Confronted with an obligation to pay millions of dollars in deposits, James Howenstein only had a few dollars at hand. He eventually found a way to solve his problem but only with the help of peer bankers. It was then that Howenstein felt the need for a fraternal organization for the industry where he belonged. On May 24, 1875, he convened a group of 17 bankers in New York City, and the ABA was born.