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Prospect of US interest rate cut weighs on bank shares

Robert Armstrong and Robin Wigglesworth in New York

As expectations have increased that the Federal Reserve will cut US interest rates as early as next month, investors have sold bank stocks, showing particular eagerness to rid themselves of the most rate-sensitive lenders. Since the bank sell-off began in the first week of May, the worst performers in the widely followed KBW Bank Index are overwhelmingly rate-sensitive banks, including Bank of America, Silicon Valley Bank and Bank of New York Mellon, all down 7 per cent or more. Despite a recent rebound, the banks index itself has fallen 5.4 per cent since then, while the S&P 500 is down less than 2 per cent. Meanwhile, banks with balance sheets that are relatively immune to declining rates, such as US Bancorp, have outperformed most rivals.