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Banks in Turmoil

Have short sellers been tanking bank stocks? Group wants SEC to investigate

Kimberly Adams May 5, 2023
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Short sellers bet against First Republic Bank. The American Bankers Association is urging the Securities and Exchange Commission to see if market manipulation was involved. Justin Sullivan/Getty Images
Banks in Turmoil

Have short sellers been tanking bank stocks? Group wants SEC to investigate

Kimberly Adams May 5, 2023
Heard on:
Short sellers bet against First Republic Bank. The American Bankers Association is urging the Securities and Exchange Commission to see if market manipulation was involved. Justin Sullivan/Getty Images
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Here at Marketplace, there’s a particular saying we like: The stock market is not the economy.

We saw an example of that this week when banking stocks were tanking while smaller banks across the country were saying they were fine.

The American Bankers Association is laying some of the blame for that at the feet of short sellers trying to scare people into thinking banks are about to go under so that the stock price falls and they can profit. On Thursday, the ABA sent a letter to the Securities and Exchange Commission asking the agency to look into the issue.

Short selling on its own is perfectly legal — it’s just placing a bet that a stock price will go down. And short sellers talk about their bets all the time: on social media, cable TV, in blog posts and articles that sometimes reach millions of people.

“In some cases, that can be really valuable information when a public company is in fact overvalued,” said Haima Marlier, a partner at the law firm Morrison Foerster.

What the ABA is worried about is short selling that crosses the line into market manipulation, she said. “What that would look like is someone using social media to cast doubt on the financial health of a public company and that person doesn’t disclose that they have already taken a short position in that stock.”

The American Bankers Association said that shares in banks that are perfectly sound are getting hammered in the market in a way that just looks weird.

“We’ve been in constant communication with our members, and they’ve shared with us their concerns, including engagement that they’ve seen on social media,” said Naomi Camper, chief policy officer at the ABA. “And many believe that their shares have been manipulated by short sellers. They’re seeing trading in their shares that defy the underlying fundamentals, and they’re worried about it.”

That affects bank investors, but it can also scare bank customers — and scared customers can go on bank runs. But for now, a lot of this drama is confined to the stock market.

“I think we have to keep in mind that we’re talking about a very, very, very small fraction of the public that is actually directly impacted by these various banks going under,” said Mallory Newall, a vice president at public polling firm Ipsos.

Ipsos polling finds 78% of Americans still trust their bank.

So as a reminder: Banking stocks are not the whole banking industry. And the stock market is not the economy.

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