Everyone knows the big four banks, Commonwealth Bank of Australia (ASX: CBA), Australia and New Zealand Banking Group (ASX: ANZ), Westpac Banking Corp (ASX: WBC) and National Australia Bank Ltd. (ASX: NAB).
Hopefully, you also know that the big four have had to raise capital to make sure they have enough capital under national and international rules. There is a possibility that the big four may have to raise more capital, depending on how talks go overseas.
The big four also seem to regularly be fined for some scandal or bad practice such as the financial planning and LIBOR rate rigging. This can really dent profits.
Perhaps there are too many risks to the big four so it may be better to own some of the smaller ASX-listed banks instead.
Bendigo and Adelaide Bank Ltd (ASX: BEN)
Bendigo Bank has a market capitalisation of $6.2 billion, a lot smaller than the big four banks. It has a presence in every state, though it is more heavily focused in Victoria and South Australia.
Thanks to the big four having to hold more capital for each loan they provide, Bendigo has a better chance of competing on new loans.
Bendigo Bank is trading at 14.5x FY17's estimated earnings with a grossed up dividend yield of 7.4%, which is bigger than two of the major banks.
Bank of Queensland Limited (ASX: BOQ)
Bank of Queensland has a market capitalisation of $4.75 billion. As the name suggests, a big majority of its activity is based in Queensland, however it has been steadily increasing its geographical diversification in recent years.
It will also be a benefactor of more competitive rates due to the big four's capital requirements for lending.
It's currently trading at 12.7x FY17's estimated earnings with a grossed up dividend yield of 8.84% which is bigger than three of the other major banks.
CYBG PLC CDI 1:1 (ASX: CYB)
The Clydesdale and Yorkshire Bank offers investors an opportunity to invest in one of the UK's smaller banks. NAB divested the bank in February 2016 and its share price has since grown by 12.5%.
The Bank of England Governor, Mark Carney, recently commented that Brexit may actually be a good thing for the U.K. economy, so this bank could be a benefactor of that.
The U.K. appears to be heading in the right direction so now could be the perfect time to buy some shares of the second-tier bank.
Foolish takeaway
I think all three of these banks are good options compared to the big four banks. Foolish investors can still get good exposure to the banking sector without concentrating their portfolio into more big bank shares.
