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Sunday, Jul 05, 2026

US banks blame 'abusive trading practices' for crisis of confidence

US banks blame 'abusive trading practices' for crisis of confidence

The US markets regulator is being urged to intervene amid claims that so-called short sellers are deliberately seeking to bring some lenders to their knees for their own financial gain.
The main lobby group for US banks has appealed for regulators' help to close the door on the crisis of confidence ripping through shares in a growing number of the country's lenders.

The American Bankers Association (ABA) used a letter to the Securities and Exchange Commission (SEC) to accuse so-called short sellers of bringing otherwise healthy banks to their knees through "abusive" practices.

There has been an assault on the share prices of many regional lenders this week, exacerbating pain inflicted on the sector in the wake of the failures of Silicon Valley Bank, Signature Bank and First Republic.

There have been significant deposit flights in the wake of investor concern about balance sheet pressure caused by rising interest rates.

The Federal Reserve's battle to control inflation has hit the value of bank bondholdings.

Just this week, LA-based PacWest and Western Alliance of Arizona have seen their share prices clobbered.

In PacWest's case, it was forced to release a statement saying it was exploring its strategic options while Western Alliance denied a Financial Times report that it was seeking a sale.

It did not stop a further 51% being taken off its market value on Thursday.

Western Alliance lost 31%.

Early dealing on Friday suggested some breathing space for the lenders despite data showing higher employment and wage growth for the US economy than analysts had expected.

Such news only fuels rate hike pressure at the Fed.

The ABA's claim that some investors were deliberately fuelling the crisis of confidence was supported by figures from analytics firm Ortex.

It said short sellers raked in $378.9m in paper profits on Thursday alone from betting against certain regional banks.

The ABA said it had also observed "extensive social media engagement" about the health of various banks that was out of step with general industry conditions.

"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," the group's letter said.

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

It 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."

The intervention is seen as important because there are growing fears that the crisis risks tipping the world's largest economy into a deeper-than-expected recession this year.

Market analysts and economists alike say the threat to the availability of credit resulting from the damage being inflicted on banks is a significant risk.

The Fed, already under pressure from critics for raising its main interest rate during the crisis, and federal government have also faced criticism over a perceived failure to intervene.

For its part, the SEC has pledged to seek out any form of misconduct that might threaten investors or markets.
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