The Facts
- US federal and state officials are reportedly analyzing whether a possible "market manipulation" was behind the recent volatility in regional banking shares, as the White House vowed to monitor "short-selling pressures on healthy banks."
- This comes as the American Bankers Association urged the Securities and Exchange Commission (SEC) to take action against the alleged "abusive" trading practices against otherwise healthy banks.
- Short sellers reportedly made nearly $379M in paper profits on a single day alone from betting against certain regional banks despite allegations of strong fundamentals in the sector and sufficient capital levels.
Sources Split
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The Spin
Pro-establishment narrative
It is certain that bearish short sellers have been betting against regional bankers despite the Fed reaffirming that the US banking system is sound and resilient, but this does not tell the entire story. Some investors are fearing the contagion of regional banking problems and its possible spillover to the broader economy, while others may be seeking to force the Fed to ease its campaign to cool inflation down. The finance marketplace is adjusting to broader complexities.
Establishment-critical narrative
Short sellers do play a crucial role in rational, well-functioning markets. However, because these investors have pocketed billions of dollars in two months by betting against regional banks that added deposits in April, it should be clear by now that this is no longer a well-functioning financial market. A temporary ban on short selling, similar to the one adopted in 2008, should be put in place to reduce panic selling.
Metaculus Prediction
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