Exchange-traded funds tracking U.S. regional banks saw their strongest net inflows in months, with the SPDR S&P Regional Banking ETF receiving $1.25 billion in the month to March 29, while the iShares U.S. Regional Banks ETF took in $258 million, according to Refinitiv Lipper data.

March was the first month of net buying for the IAT fund in a year, and one of the best months on record in terms of flows for KRE.

That's despite both funds plunging about 29% in March as the collapse of Silicon Valley Bank and Signature Bank triggered fears of a contagion and doubts about the sector's stability, making U.S. regional banks among the worst-performing sectors this year.

"A lot of investors are assuming that the worst of the volatility has cooled at this point and taking advantage of those lower prices," said Roxanna Islam, head of sector and industry research at VettaFi.

A swift response from regulators and central banks encouraged investors looking to "buy at the bottom," Islam said.

Investors also eyed funds tracking larger banks assumed to be more stable, with the SPDR S&P Bank ETF taking in nearly $79 million in March, its first month of net buying since October.

"Bank equities are already pricing in a lot of bad news," said John Tierney, strategist at MacroHive, recommending increased allocations to big banks including JPMorgan Chase & Co and Citigroup.

"As markets continue to settle down ... banks generally and major banks especially will outperform the S&P 500."

Overall prices for these funds recovered slightly over the past week as banking sector worries eased, but the KBE fund is set to drop 23% for the month, its worst since COVID-19 lockdowns roiled markets two years ago. The S&P 500 rose 2.5%.