Securities and Exchange Commission Chair Gary Gensler said Monday that the agency is not considering a temporary ban on short selling of stocks in troubled regional banks, because history shows that such policies don’t work to prevent panic selling.
Efforts to stabilize the financial-services sector with bans on short selling “haven’t worked in the past,” Gensler said during an appearance at the Atlanta Federal Reserve Financial Market Conference. He also said that such bans “tend to drive lower liquidity” and “don’t necessarily support asset prices.”
The regulator added that in the face of past short-sale bans, investors have simply shifted to using derivatives to express their skepticism of certain equities. He said that the bans have also created more fear because they “say to the public that the official sector is not confident in fair, orderly and efficient markets.”
Calls for regulators to step in to halt short selling of regional-bank stocks have grown in recent weeks amid the failures of several large financial institutions, including Silicon Valley Bank, and the sale of First Republic Bank to JPMorgan Chase & Co.
JPM,
JPMorgan CEO Jamie Dimon said in an interview last week that regulators should “vigorously” prosecute “unscrupulous” market participants who may be engaged in acts of market manipulation paired with short sales of bank stocks.
See also: Jamie Dimon sets cautious tone on bank regulation for smaller U.S. banks
Other observers of the sector worry that sharp declines in the stock prices of some banks could instigate unsubstantiated fears among depositors that the institutions aren’t safe, and this dynamic could create a self-fulfilling feedback loop of deposit flight and stock-price declines that unnecessarily puts those banks in danger.
Regional-bank stocks were rallying Monday, with the SPDR S&P Regional Bank exchange-traded fund
KRE,
gaining more than 3%, led by gains at Western Alliance Bancorp.
WAL,
Metropolitan Bank Holding Corp.
MCB,
and PacWest Bancorp
PACW,
