NEW YORK (Reuters) - U.S. federal and state officials are assessing whether "market manipulation" caused the recent volatility in banking shares, 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 resumed their slide this week after the collapse of First Republic Bank, the third U.S. mid-sized lender to fail in two months. Short sellers raked in $378.9 million in paper profits on Thursday alone from betting against certain regional banks, according to analytics firm 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, but any possible action would be taken by the Securities and Exchange Commission.
"The administration is going to closely monitor the market developments, including the short-selling pressures on healthy banks," Jean-Pierre told a White House briefing.
The American Bankers Association on Thursday called on the SEC to investigate significant short sales of banking shares and social media engagement that it said appeared to be "disconnected from the underlying financial realities."
"We urge the SEC to consider all its existing tools and to take measures to reduce the avenues for abusive trading practices and restore investor confidence," the group said.
SEC Chair Gary Gensler on Thursday said the agency would go after any form of misconduct that might threaten investors or markets.
"As I’ve said, in times of increased volatility and uncertainty, the SEC is particularly focused on identifying and prosecuting any form of misconduct that might threaten investors, capital formation, or the markets more broadly,” he said in a written statement.
Consumer Bankers Association President and CEO Lindsey Johnson stressed the banking industry remained strong and urged policymakers to call out "unethical behavior by activist investors" who were taking advantage of market volatility.
"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.