U.S. officials assessing possible 'manipulation' on banking shares

Full article and details: https://www.reuters.com/markets/us/us-officials-assessing-possible-manipulation-banking-shares-source-2023-05-04/

U.S. authorities at both the federal and state levels are investigating the possibility of "market manipulation" as a factor in the significant fluctuations in banking stock prices observed in recent days, according to an individual with knowledge of the matter who spoke on Thursday.

This week, shares of regional banks continued to decline following the collapse of First Republic Bank, marking the third failure of a mid-sized U.S. lender in the past two months.

The source, who was not authorized to speak publicly, noted that the heightened volatility and increased short-selling activity in banking stocks have attracted the attention of regulators and officials. This scrutiny comes despite the sector's robust fundamentals and adequate capital levels.

The individual stated, "State and federal regulators and officials are increasingly attentive to the possibility of market manipulation regarding banking equities."

The source emphasized that the fluctuations in share prices did not align with the strong performance of many regional banks in the first quarter, which was characterized by stable deposits, sufficient capital, reduced uninsured deposits, and sound fundamentals.

The individual added, "This week we have seen that regional banks remain well-capitalized."

While short selling—where investors sell borrowed securities with the intention of repurchasing them at a lower price to profit from the difference—is a legal and normal part of a functioning market, intentionally manipulating stock prices to deceive or defraud investors is illegal, as defined by the U.S. Securities and Exchange Commission (SEC).

An SEC official informed Reuters on Wednesday that the agency is "not currently contemplating" imposing a ban on short selling. The SEC did not immediately respond to a request for comment from Reuters on Thursday.

However, the source noted that during a previous period of heightened market volatility related to the collapses of Silicon Valley Bank and Signature Bank in March, the SEC had cautioned that it was closely monitoring market stability and would take action against any form of misconduct.