The White House has vowed to monitor illegal short selling activity after bank stocks have taken a massive plunge.
Shares of PacWest Bancorp (NASDAQ:PACW) fell more than -50% on Thursday and are down more than -70% in the past week alone.
Volume surged to 106.9 million, six times its average trading volume of only 17 million.
(Reuters) U.S. federal and state officials are assessing the possibility of “market manipulation” behind big moves in banking share prices in recent days, a source familiar with the matter said on Thursday, as the White House vowed to monitor “short-selling pressures on healthy banks.”
Shares of regional banks continued to fall this week after the collapse of First Republic Bank, the third U.S. mid-sized lender to fail in two months.
Short sellers made $378.9 million in paper profits on Thursday alone from betting against certain regional banks, according to Ortex.
Increased short-selling activity and volatility in shares have drawn increasing scrutiny by federal and state officials and regulators in recent days, given strong fundamentals in the sector and sufficient capital levels, said the source, who was not authorized to speak publicly.
“State and federal regulators and officials are increasingly attentive to the possibility of market manipulation regarding banking equities,” the source said.
White House press secretary Karine Jean-Pierre said the Biden administration was closely watching on the situation.
Temporary Short Selling Ban
“This volatility is being fueled by emotion and misinformation that does not reflect the strong underlying fundamentals of our banks,” Johnson said in a statement.
“These institutions remain resilient and well-capitalized, and Americans can rest assured their deposits are safe.”
The S&P 600 bank index dropped over 3% on Thursday.
PacWest Bancorp shares tumbled over 50% after it confirmed it was exploring strategic options.
Western Alliance Bancorp denied a report from the Financial Times that said it was exploring a potential sale, and said it was exploring legal options.
Its shares plummeted more than 38%, with trading in the stock halted multiple times.
The increased short-selling activity has triggered some calls for a temporary ban, but an SEC official told Reuters on Wednesday the agency was “not currently contemplating” such a move.
The SEC first warned investors in March, during a previous period of high market volatility surrounding the collapse of Silicon Valley Bank and Signature Bank, that it was carefully monitoring market stability and would prosecute any form of misconduct.
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