ABA Bank Index - Explained
What is an ABA Bank Index?
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Table of ContentsWhat is an ABA Bank Index?How Does an ABA Bank Index Work?NASDAQ OMX ABA Community Index (ABQI)ABA NASDAQ Community Bank Total Return Index (XABQ)Functions of ABA Banking IndexABA Bank Index ImportanceABA Banking Index Benefits
What is an ABA Bank Index?
The American Bankers Association (ABA) refers to a banking index that is made up of both the bank firms and the local community banks. The ABA index is mainly a representative of the smaller community banking industry. The index was created in 2003 and has a market capitalization estimate of one hundred and fifty dollars. The banking index actively trades on the Nasdaq. The ABA bank Index is also referred to as the ABA NASDAQ Community Bank Index.
How Does an ABA Bank Index Work?
ABA banking index was created by the American Bankers Association. ABA is a US banking industry lobbying and trade association. It represents all categories of banks including the local community, regional, and large national banks in the United States. ABA holds about $17 trillion assets, $13 trillion deposits, and loans worth $10 trillion. It is weighted as per the market price value and is made up of 325 community banks. Apart from ABAQ, there are also other ABA Indices brands as shown below:
NASDAQ OMX ABA Community Index (ABQI)
Launched in 2009, the ABQI index is mandated to track the performance of the actively traded local community bank which makes up the Index (ABAQ). To be part of the ABQI Index, it is a must that the security meets the following two qualifications:
- Have a minimum market qualification of two hundred million dollars plus a daily dollar trading volume of at least five hundred dollars thousand.
- Meet these laid down requirements; security functioning history, creditworthiness, and financial statement. These are eligibility requirements for inclusion in the ABQI Index.
ABA NASDAQ Community Bank Total Return Index (XABQ)
The XABQ include the process of investing back the ABAQ index members cash distribution on the ex-date. The calculation of price returns and the total return index value is done on a daily basis. Generally, It reflects the price increase or decreases including the element of securities dividend yields. It can be accessed through ABAQI symbol.
Functions of ABA Banking Index
ABA Banking Index was created in order to perform the following functions:
- To support market liquidity improvement and uniformity in market valuations.
- To keep track of small banks stocks performance by showing the strength of the US economy and the banking industry.
- To promote community banking industry welfare general usefulness.
- To encompass appropriate questions considerations concerning the use of financial and commercial, conducts and laws affecting the banking interests across the country. It also considers questions that protect loss through crime.
ABA Bank Index Importance
The major importance of ABA Bank Index is that it supports the United States local economies. It provides commercial lending to small and mid-market business. The other loan provided by the banking index is the mortgage loan, plus the deposit accounts. Note that for many years, there has been an ongoing community bank industry consolidation following the fall of independent banks every year. This has enabled the remaining banks to use economies of scale to their advantage to reduce costs and deliver more efficient services.
ABA Banking Index Benefits
ABA Banking Index provides the following benefits:
- There is a steady rise in short-term interest rates. This is advantageous to small local community banks as they get more returns from the steady interest rate increase.
- There are reduced regulations and this pulls down compliance-related costs. For instance, there was a corporate tax reform in 2017 and accretive mergers & acquisitions that saw the compliance costs reduce significantly.
- The expansion of the US economy has seen a steady growth on healthy loan, meaning there has been an increase in loan borrowing which has enabled small banking institutions to generate more interest from borrowed loans.
- Also, many banks have been able to give out regular dividends to its shareholders due to stock price appreciation.