The standard Wall Street line on bank stocks is that they are almost interchangeable pegs, moving up in unison when external events turn favorable, and down in the same fashion when events turn unfavorable.

To be sure, bank stocks tend to move inversely with interest rates, but it is not true that investors are "story-proof." The data show that the market takes a much more differentiated look at the worth of bank shares in some periods than in others. Indeed, in the last quarter century, investors have been particularly sensitive to the condition of individual institutions during periods of credit stress, reacting to rising loan losses by punishing higher-chargeoff banks much more severely and for longer periods than lower-chargeoff institutions.

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