NEW YORK ( TheStreet) -- Several large regional U.S. banks took it on the chin Thursday, with shares sliding 4%.
The broad indices ended mixed, after the euphoria of the decision Wednesday by the Federal Open Market Committee to leave Federal Reserve economic stimulus unchanged, wore off. The FOMC decided not to taper the central bank's "QE3" long-term bond purchases from a monthly pace of $85 billion. The Fed has expanded its balance sheet at this rate since last September.
Bank stocks were weak on Thursday. The KBW Bank Index (I:BKX) was down 1.4% to close at 63.77, with all but one of 24 index components ending with declines.The decision for the Fed not to lower bond purchases took most market watchers by surprise, and was greeted with enthusiasm Wednesday by the broad market. But bank stock investors need to worry about the Fed's main policy tool -- the federal funds rate, which has remained in range of zero to 0.25% since late 2008. The FOMC made a slight change in its language from the previous statement, saying its "highly accommodative" policy for short-term rates would "remain appropriate" at least until the national unemployment rate drops below 6.5%, assuming inflation projections remain in check, but added that it was likely to keep the federal funds rate in its current range "for a considerable time after the asset purchase program ends and the economic recovery strengthens." That's bad news for many regional bankers. Long-term interest rates have been rising, as investors have anticipated a tapering of the Fed's bond purchases. But many banks need a parallel rise in interest rates to see a significant boost to their net interest margins and net interest income. And that may take until at least late next year, depending on how accurate the FOMC's revised economic forecasts turn out to be.