Have Short Sellers Tanked Bank Stocks?

Here at Marketplace, there’s a certain saying we love: the stock market is not the economy.

We saw an example of that this week as bank stocks plummeted, while smaller banks across the country said they were doing well.

The American Bankers Association puts some of the blame for that on short sellers who try to scare people into thinking banks are about to go under so the stock price drops and they can profit. On Thursday, the ABA sent a letter to the Securities and Exchange Commission ask the agency to investigate the problem.

Short selling in itself is perfectly legal, it is simply placing a bet that a stock price will fall. 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 publicly traded company is basically overvalued,” said Haima Marlier, a partner at the law firm of Morrison Foerster.

What the ABA is concerned about is short selling crossing 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 publicly traded company and that person not disclosing that they have already taken a short position in that stock.”

The American Bankers Association said shares of perfectly healthy banks are being hammered into the market in a way that just looks weird.

“We have been in constant contact with our members and they have shared their concerns with us, including engagement they have seen on social media,” said Naomi Camper, chief policy officer at the ABA. “And many believe their stocks have been manipulated by short sellers. They see trades in their stocks that defy the underlying fundamentals, and they are concerned about that.

That affects bank investors, but it can also scare off bank customers and frightened customers can go on bank runs. But for now, much 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 portion of the public that is actually directly impacted by the demise of these various banks,” said Mallory Newall, a vice president of the public polling agency. Ipsos.

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

So as a reminder, banking stocks are not the entire banking industry. And the stock market is not the economy.