The main lobby group for US banks has enlisted the help of regulators to close the door on the crisis of confidence that is wracking the stocks of a growing number of the country’s lenders.
The American Bankers Association (ABA) used a letter to the Securities and Exchange Commission (SEC) to accuse so-called short sellers of bringing otherwise healthy banks to their knees through “abusive” practices.
There was a assault on stock prices of many regional lenders this week, exacerbating the pain inflicted on the sector following the bankruptcies of Silicon Valley BankSignature Bank e First Republic.
There have been significant deposit outflows on the back of investor concern about pressure on balance sheets from rising interest rates.
The Federal Reserve’s battle to control inflation has hit the value of bank bonds.
Just this week, Los Angeles-based PacWest and Western Alliance of Arizona saw their stock prices tumble.
In PacWest’s case, it was forced to issue a statement saying it was exploring its strategic options while Western Alliance denied a Financial Times report that it was seeking a sale.
Thursday did not prevent another 51% from being downgraded from its market value.
Western Alliance lost 31%, while other notable declines included Zion Bancorp and Dallas-based Comerica Bank, both down 12%.
The ABA’s claim that some investors were deliberately fueling the crisis of confidence was supported by data from analyst firm Ortex.
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First Republic ‘brought down by $100 billion deposit outflow’
He said short sellers raked in $378.9 million in paper profits Thursday alone from bets against some regional banks.
The ABA said it also observed “extensive social media engagement” about the health of various banks that was out of step with overall industry conditions.
“We urge the SEC to consider all of its existing tools and take steps to reduce the chances of abusive trading practices and restore investor confidence,” the group letter read.
“These measures include, at a minimum, a clear message and appropriate enforcement action against market manipulation and other abusive short selling practices.”
He added: “The damage caused by short selling that goes against economic fundamentals ultimately falls on small investors, who see value destroyed by the predatory behavior of others.”
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The intervention is seen as important as fears grow that the crisis risks plunging the world’s largest economy into a deeper than expected recession this year.
Both market analysts and economists say that the threat to credit availability resulting from the damage inflicted on banks represents a significant risk.
The Fed, already under pressure from critics to raising its prime interest rate during the crisis, and the federal government also faced criticism for an alleged inaction.
For its part, the SEC has pledged to look for any form of misconduct that could threaten investors or markets.
