15% of the FTSE 100 index is made up of banks and this means shares in them are usually a key part of any investment portfolio. With questions over finances and fears of a recession, stock markets around the world are fluctuating wildly. So is now a good time to invest in banks or not? Some fund managers are avoiding investing in banks whereas others think now is the perfect time to pick up a bargain.

Banks are one of the most widely held stocks – they make up around 15% of the FTSE 100 index and generate a generous wedge of FTSE 100 profits. Most people who has a pension of an investment will indirectly hold shares in some of the major UK banks.

Since fears over the credit crunch have surfaced, bank shares have plummeted and as a result, investment funds that had invested heavily in bank shares fell dramatically. With more and more problems coming to light – the Northern Rock issues and the Societe General fraud to name two high profile cases – as well as fears over imprudent lending continue to make investors wary over investing in banks.

So there is the possibility that bank shares will fall in the near future, but when will they bounce back? Bank shares will probably not start to fully recover until investors are satisfied with the accounting, and this means that banks may possibly have to cut their dividends – and historically, dividends to share prices have been high. There has to be a small leap of faith from investors – faith that says they trust that the people running the banks know what they are doing.

Bank shares are likely to recover once financial fears have been allayed and this means that there may be some excellent buys which may yield fantastic returns in the mid to long term future. For those who are currently holding onto bank shares which have plummeted, it may be worth holding onto them unless cash is needed now although individual shares are quite a risk (as Northern Rock shareholders have found out recently) therefore switching to a broader investment fund may be a wise idea.

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