U.S. officials assessing possible ‘manipulation’ on banking shares – source

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NEW YORK — U.S. federal and state officials are assessing the possibility of “market manipulation” behind the big moves in bank stock prices in recent days, a source familiar with the matter said Thursday, as the White House vowed to monitor “shorting pressure.” on healthy banks.”

Regional bank stocks resumed their decline this week after the collapse of First Republic Bank, the third medium-sized US bank to fail in two months. Short sellers took in $378.9 million in paper profits Thursday alone from betting against some regional banks, according to analytics firm Ortex.

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The source, who was not authorized to speak publicly, said increased short-selling activity and volatility in stocks has led to increased scrutiny from federal and state officials and regulators in recent days, given the sector’s strong fundamentals and adequate capital levels.

“State and federal regulators and officials are increasingly concerned about the potential for market manipulation in relation to bank stocks,” the source said.

Witt’s press secretary, Karen Jean-Pierre, said the Biden administration is monitoring the situation closely.

Management will closely monitor market developments, including shorting pressures on healthy banks. I must refer you to the SEC on any potential actions,” Jean-Pierre said at a White House briefing.

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U.S. Securities and Exchange Commission Chairman Gary Gensler said Thursday that the agency will pursue any form of misconduct that could threaten investors or the markets.

“As I have said, in times of heightened volatility and uncertainty, the SEC is especially focused on identifying and prosecuting any form of misconduct that could threaten investors, capital formation, or markets more broadly,” he said in a written statement.

Shares of Backwest Bancorp plunged more than 40 percent on Thursday, dragging other regional lenders back, after the Los Angeles-based bank said it was in talks about strategic options.

Western Alliance Bancorp denied a report from the Financial Times that it was exploring a possible sale, and said it was exploring legal options. The report sent shares of the lender down 60% before paring losses to trade about 35% lower.

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The source said the stock price fluctuations did not reflect the fact that many regional banks outperformed first-quarter earnings and had sound fundamentals, including stable deposits, adequate capital and low unsecured deposits.

“We witnessed this week that regional banks are still well-capitalised,” the source said.

Short selling, where investors sell borrowed securities with the intention of buying them back at a lower price to pocket the difference, is not illegal and is considered part of a healthy market. But stock price manipulation, which the Securities and Exchange Commission has defined as “deliberate or willful conduct designed to deceive or defraud investors by artificially controlling or influencing stock prices, is.

The short selling activity has prompted some calls for a temporary ban, but an SEC official told Reuters on Wednesday that the agency is “not currently considering” such a move.

The SEC first warned investors in March, during an earlier period of high market volatility surrounding the collapse of Silicon Valley and Signature Bank, that it was carefully watching market stability and would prosecute any form of misconduct. (Reporting by Chris Prentice in New York and Trevor Honeycutt in Washington; Additional reporting by Andrea Shalal in Washington; Editing by Kieran Murray, Chizu Nomiyama and Deba Babbington)