ABA Bank Index Definition
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.
A Little More on What is ABA Bank Index
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.
Reference for “ABA Bank Index”
Potential insolvency, market efficiency, and bank regulation of large commercial banks, Pettway, R. H. (1980). Journal of Financial and Quantitative Analysis, 15(1), 219-236. This article discusses the concepts of market efficiency, potential insolvency, and bank regulation in regard to commercial banks. According to Pettway (1980), bank regulators always disagree with the idea that markets play a significant role in the regulation of banks. Markets for bank securities are perceived as being inefficient and lack the required information to demand sufficient risk premiums on bank obligations that can affect management decisions in a bank. Conversely, bankers with active markets for their bank securities place faith in the assessment of similar markets to determine the management policies costs, thus, thinking that the markets are significant in regulating the decisions of the bank. The author, therefore, assumes that regulators may be right about markets for SME banks, but this could be different in the case of banks with active market for their securities. In such a case, the author questions whether the adjust rates of return by investors increase potential of bankruptcy and when the adjustment is to be expected.
The bank robber, THE QUOTE, and the final irony, Cocheo, S. (1997). The bank robber, THE QUOTE, and the final irony. ABA Banking Journal, 89(3), 71. This article describes the story of a bank robber, Willie Sutton as well as his quote and the related irony. According to the author, one morning he got obsessed with the story told in a banking conference in which Willie Sutton had been asked why he robbed banks. Sutton had responded, “because that’s where the money is,” a response that the author continued to fantasize thereby wanting to know more about Willie Sutton and what the quote actually meant.
[PDF] Applied behavior analysis, Cooper, J. O., Heron, T. E., & Heward, W. L. (2007). This published book is based on the concept of applied behavior analysis in which Cooper and Heward define the characteristics of applied behavior analysis. The authors explore how to select and define target behaviors as well as ways of measuring and recording behavior. In addition, the book provides an evaluation and analysis guide toward behavior change and stimulus control. Three ways to develop new behaviors have also been discussed including behavioral shaping, behavioral chains, and imitation. In conclusion, the authors propose the ways to communicate one’s results of behavioral change efforts.
Bank annuity sales at a crossroads, Kehrer, K. (2006). ABA Banking Journal, 98(9), 50. This article illustrates the banks’ role in the sales of annuity. Since the 1980s, the author asserts that banks have been the most significant sellers of traditional fixed annuities while also remaining the notorious distributors of variable annuities.in the previous year, banks were found to account for 31% of all fixed annuity sales in the US market with a variable market share of 13%. During the same period, bank brokerage units, annuities accounted for between 55% and 64% of investment sales revenue. However, recently the sales have been deteriorating, with bank annuity sales falling up to 19%. The author, thus, proposes the need to assess the causes of annuity sales growth in order to know whether such factors are being undermined.
Managing technology in a community bank, Kershner, J. Q. (1990). ABA Banking Journal, 82(11), 26. The author of this article describes how technology can be managed in a community bank. According to the author, community banks will have more technology in the coming years. With the existence of powerful personal computers, midrange systems, and integrated software, community banks are expected to utilize automation in order to improve customer service. The author also notes the possible challenges that community banking organizations face when managing technology. First, there would be limited staff and front line employees to manage the technology projects. Employees also lack technical knowledge and skills to implement new technology. Thirdly, community banks lack the capital to invest in technology-based projects. However, amidst these challenges community banks have a better understanding of the needs and expectations of their consumers. Thus, the author proposes that community banks utilize this opportunity as well as a central person who is responsible for managing technology to support the strategic efforts and business plans.