A main lobby group of US banks is seeking help from regulators to close the door on a confidence crisis that is tearing stocks of a growing number of US lenders apart.
The American Bankers Association (ABA) used a letter to the Securities and Exchange Commission (SEC) to accuse so-called short sellers of bringing sound banks to their knees with “abusive” practices.
Investor concerns about pressure on balance sheets from rising interest rates have resulted in significant deposit flight.
The Federal Reserve’s fight to contain inflation has taken a toll on the value of bank bond holdings.
Just this week, shares of LA-based PacWest and Western Alliance of Arizona plummeted.
In the case of PacWest, the Western Alliance was forced to deny a Financial Times report that it was seeking a sale and issue a statement that it was considering strategic options.
That didn’t stop Thursday’s market value from being deducted another 51%.
Western Alliance lost 31%.
Early trading on Friday suggested some breathing room for lenders, despite data showing higher job and wage growth in the US economy than analysts expected.
News like this only increases pressure on the Fed to raise rates.
The ABA’s claims that some investors were deliberately fueling a confidence crisis were backed up by figures from analytics firm Ortex.
Short sellers said they made $378.9 million in paper profits betting on certain local banks on Thursday alone.
The ABA also said it observed “massive social media engagement” on the health of various banks, out of step with general industry conditions.
“We urge the SEC to review all existing tools and take action to reduce unfair trading practices and restore investor confidence,” the group’s letter said.
“These actions will include at least a clear message and appropriate enforcement actions against market manipulation and other abusive short selling practices.”
“The harm caused by short-selling against economic fundamentals ultimately falls on smaller investors who believe their value will be destroyed by the predatory actions of others,” he added.
The intervention is seen as critical as concerns grow that the crisis risks plunging the world’s largest economy into crisis. recession deeper than expected this year.
Market analysts and economists say the threat to credit availability arising from the damage done to banks is a significant risk.
Federal Reserve already under pressure from critics hike in major interest rates During the crisis, the federal government also faces criticism for its perceived failure to intervene.
Meanwhile, the SEC is committed to looking for all forms of fraud that could threaten investors and the market.
https://news.sky.com/story/us-banks-blame-abusive-trading-practices-for-crisis-of-confidence-12873469 US Banks Blame Confidence Crisis on ‘Unfair Trade Practices’ | Business News