Here’s Why U.S. Bankers Want SEC To Investigate Short Sales

Sahana Kiran
Source – The American Project

In 2023, Some traditional financial institutions suffered significant losses while others thrived. Several U.S. banks were particularly impacted by these challenges. To prevent similar occurrences in the future, the American Bankers Association [ABA] has requested that federal authorities investigate a series of major short sales of publicly traded banking equities that it believes were “disconnected from the underlying financial realities.”

In the letter addressed to Gary Gensler, the Chair of the U.S. Securities and Exchange Commission [SEC], the American Bankers Association alleges that short sellers engaged in “abusive” practices that caused otherwise healthy banks to suffer significant losses. The letter read,

“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. These measures include, at a minimum, a clear message and appropriate enforcement actions against market manipulation and other abusive short selling practices.”

The ABA, or American Bankers Association, is a trade association that represents a wide range of banks in the U.S. It includes small, regional, and large banks that collectively employ over 2 million people. It also protects $19.2 trillion in deposits and issues $12.2 trillion in loans.

This wasn’t all. The American Bankers Association further stated in the letter that it had noticed “extensive social media engagement.” This was in regard that the financial health of several banks that was not aligned with the broader industry conditions. As witnessed, PacWest Bancorp and Western Alliance Bancorp saw a drastic plummet in their shares.

Will the SEC probe look into this excessive short selling?

According to analytics firm Ortex, the ABA’s assertion that some investors were intentionally aggravating the crisis of confidence in banks. Ortex reported that on Thursday, short sellers made $378.9 million. This was in paper profits from their bets against certain regional banks.

In his letter to the SEC Chief, ABA President Rob Nichols acknowledged that short selling could be a legitimate financial tool. However, he stated that his group was firmly against short-selling practices that manipulate and abuse the markets. He further added,

“The harm caused by short selling that runs counter to economic fundamentals ultimately falls on small investors, who see value destroyed by others’ predatory behavior.”

Furthermore, Nichols urged Gensler to take decisive action and send a strong message to the market. Alongside, he also called for enforcement measures to be taken against abusive short-selling practices and market manipulation.