The banking sector got a wake-up call in early 2023 from a few high-profile meltdowns. Although the run on several regional banks didn't spread far, it reminded investors that banking can be risky if companies don't handle themselves in a conservative manner. That's why investors will likely be attracted to industry giants Toronto-Dominion Bank (NYSE: TD) and Bank of America (NYSE: BAC), and why they might want to steer clear of Wells Fargo (NYSE: WFC). Here's what you need to know.

In 2023, Canada-based TD Bank was scheduled to buy a regional U.S. bank. That plan fell through because U.S. regulators were displeased with the company's approach to monitoring money laundering. The bank is likely to see a fine come from this turn of events, even as it works to update its business to better comply with regulations. That fine will be more of a slap on the wrist than a material business setback. But while the issue lingers, investors are downbeat about the company's growth prospects, given bank acquisitions are probably a no-go for a bit.

Now add in worries about the housing market in Canada, which had been very hot for a long time. But inflation picked up and interest rates rose in response. Higher rates are likely to drive up the number of struggling customers the bank has to deal with. TD Bank has been through more than a few tough markets in its 100-year-plus history, however, so it should muddle through OK. Still, that's the backstory behind TD Bank's 5% dividend yield, which is near the highest levels of the past decade. That's an opportunity if you can handle investing against the crowd while you wait for the headwinds to pass. It is highly likely they will.

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Source Fool.com