Regional banking stocks were on an upswing in pre-market trading at the time of writing on Friday after the widespread sell-off on Thursday. This widespread sell-off in regional banking stocks was sparked as investors grew worried about the collapse of PacWest Bancorp (NASDAQ: PACW) even as it tried to reassure investors that it was exploring different options and the discussions are ongoing. Even Western Alliance Bancorp. (WAL) recovered in pre-market trading on Friday after falling by around 39% the day before.
This banking collapse contagion was further intensified after First Horizon’s (FHN) merger with TD Bank (TD) was called off.
The massive selloff on Thursday has led to the possibility that U.S. federal and state officials could look into whether “market manipulation” led to the volatility in banking stocks, according to Reuters. According to the report, short sellers raked in around $380 million in profits on Thursday alone as they bet against regional banks.
White House Press Secretary Karine Jean-Pierre commented, “I can say the administration is going to closely monitor the market developments, including the short selling pressures on healthy banks. I would have to refer you to the SEC on any possible actions, but certainly this is something that we’re going to continue to monitor.”
Meanwhile, the American Bankers Association, a trade body that represents U.S. banks wrote a letter to the Securities and Exchange Commission (SEC) Chair Gensler calling for action against market manipulation and abusive short-selling practices.
The letter stated, “…[After bank failures in March] some of our members have experienced significant short sales of their publicly traded equity securities that do not appear to reflect the issuers’ financial status or general industry conditions – indeed, short sales have followed relatively favorable earnings reports from some of the banks in question and from peer institutions.”
The letter added that while short selling can be a “legitimate and important financial tool,” it can also “distort the markets through manipulation and abuse.”
Over the past five days alone, the SPDR S&P Regional Banking ETF (KRE) has dropped by more than 12%.
