Federal and state officials are investigating whether market manipulation is responsible for the significant volatility in regional bank stocks, which has attracted attention due to the industry's solid fundamentals, including stable deposits and sufficient capital levels. Short selling activity in small to mid-sized banks has surged, prompting officials and regulators to scrutinize the sector. The Securities and Exchange Commission defines market manipulation as "intentional or willful conduct designed to deceive or defraud investors by controlling or artificially affecting the price of securities."
PacWest, Western Alliance, and other small to mid-sized banks have experienced significant drops recently, with the group under scrutiny following the March collapse and seizures of Silicon Valley Bank and Signature Bank. PacWest has confirmed that it has not experienced any unusual deposit flows after the seizure of troubled First Republic Bank and other industry news. The California Department of Financial Protection and Innovation has stated that it cannot confirm investigations or whether it is aware of any specific market activity, but it is focused on stopping and remedying any practices that violate state law.
The American Bankers Association is urging the SEC to stop short bets in regional bank stocks. Short sellers made nearly $400 million on Thursday from the sell-off in regional bank stocks, according to data from financial analytics platform Ortex. Despite the concerns over market manipulation, the investigation is ongoing, and there is no conclusive evidence yet.