U.S.regional bank stocks tumbled on Oct. 16, 2025, due to fresh signs of credit stress in the banking sector. Zions Bancorporation plunged 13% on the day and Western Alliance Bancorporation fell nearly 10% after both disclosed losses tied to troubled business loans.
Zions took a $50 million charge-off related to two loans made through its California Bank & Trust unit, while Western Alliance filed a fraud lawsuit against a borrower tied to a revolving credit facility, as quoted on Yahoo Finance. SPDR S&P Regional Banking ETF (KRE) lost 6.2% on Oct. 16, 2025 while the fund fell 1.1% before market on Oct. 17, 2025.
What Happened in the Regional Banking Sector?
The latest selloff emerged from a chain of bankruptcies that have exposed interconnected risks in the financial system. Per the above-mentioned Yahoo Finance article, the September bankruptcies of subprime auto lender Tricolor and auto parts supplier First Brands have shaken Wall Street and affected several lenders.
Jefferies Financial Group was also hit by the fallout, with court filings showing its asset management unit holds $715 million in receivables linked to First Brands’ customers. The developments have raised concerns about hidden credit risks across U.S. banks, mainly smaller regional players, as mentioned on the same Yahoo Finance article.
Rising Volatility in the Markets
iPath Series B S&P 500 VIX Short-Term Futures ETN VXX gained 9.3% on Thursday while the ETN gained 3.2% before market opened on Friday, at the time of writing. SPDR S&P 500 ETF SPY lost 0.7% on Oct. 16, 2025 while the fund retreated about 1.1% in the before market session on Oct. 17, 2025.
The latest crisis could escalate further. Note that the regional banking sector already faced turmoil in early 2023 following the collapse of Silicon Valley Bank.
Where to Park Money?
Treasuries – iShares 7-10 Year Treasury Bond ETF (IEF)
Investors often flock to Treasuries as a safe haven. Two-year yields dropped five basis points to 3.37%, the lowest level since August 2022, per Bloomberg, as quoted on Yahoo Finance on Oct 17, 2025. The benchmark 10-year yield fell to 3.99% on Thursday, down six basis points from the previous day. As a result, the ETF IEF gained 0.5% on October 16. The ETF yields 3.70% annually.
Cash-Like Instruments – iShares Ultra Short Duration Bond Active ETF (ICSH)
Due to the ongoing uncertainties, money-market-based ETFs may gain. Investors should note that such ultra-short-term bond ETFs have lower interest rate risks. Thus, cash and short-dated fixed income may play a greater role in adding stability to a portfolio. The ETF ICSH yields 4.70% annually and charges 8 bps in fees.
International Bonds – Vanguard Total International Bond ETF (BNDX)
As jitters rise over the U.S. financial system, international bond markets too are likely to provide some cushion. German 10-year yields fell four basis points to 2.53%, the lowest level since June. Meanwhile, UK two- and 10-year yields dropped five basis points to 3.80% and 4.45%, respectively, as mentioned on Bloomberg, cited by Yahoo Finance. Such moves could benefit bond ETFs like BNDX, which currently yields 4.31% annually.
Consumer Staples – The Consumer Staples Select Sector SPDR Fund (XLP)
This is a safe, non-cyclical sector that is largely recession-proof. It normally operates independently of government contracts and experiences steady demand. Hence, the ongoing U.S. government shutdown is unlikely to have a major impact on staples ETFs like XLP.
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SPDR S&P 500 ETF (SPY): ETF Research Reports Consumer Staples Select Sector SPDR ETF (XLP): ETF Research Reports iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX): ETF Research Reports iShares 7-10 Year Treasury Bond ETF (IEF): ETF Research Reports Vanguard Total International Bond ETF (BNDX): ETF Research ReportsThis article originally published on Zacks Investment Research (zacks.com).
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