Safety May Not Lie in Banks

Betting on banks is getting tricky.

Bank stocks are often thought of as a safe investment, particularly when the Federal Reserve is keeping interest rates stable or paring them back. There's talk on some corners of Wall Street that bank stocks are the place to be now that Fed Chairman Ben Bernanke is signaling there may be a pause in the current cycle of rate hikes.

Much of the optimism about the future for bank stocks is borne out in the Philadelphia KBW Bank Index, which is up 5% for the year, compared with the meager 1% rise in the S&P 500. In recent weeks, the bank index has risen toward the high-water mark it reached earlier this year.

The bullish case for bank stocks got some additional juice when most lenders reported reasonably good second-quarter profits, despite fears that the Fed's past rate hikes would deplete their earnings prowess. Most banks hit or beat analyst targets, and only a couple, most notably Commerce Bancorp(CBH Quote) and M&T bank(MTB Quote), cited interest rate troubles. ...