Despite a significant recovery in equities yesterday regional banks US concern about the protracted crisis in this sector is intensifying, which causes interventions from investors and bank leaders. American billionaire investor Nelson Peltz called on Washington to actively intervene to end the crisis that began about two months ago with the collapse of Silicon Valley Bank And her Signature Bank. He specifically argued that the limit on the amount of deposits guaranteed by the American deposit insurance system should be increased so that deposits with amounts above $ 250,000 are now insured. He estimated that in this case, mass transfers of deposits from relatively small regional banks to US banking giants . Speaking to the Financial Times, he stressed: “I don’t think anyone wants all the capital to go to the big banks.” The aforementioned investor and co-founder of investment firm Trian Fund Management predicted that the turmoil in the superpower’s banking sector would not stop unless there was strong intervention from Washington, and emphasized that “if it all ended with the acquisition of First Republic by JPMorgan, it would be good, but it may not end.”

Until yesterday, everything seemed to justify his concern, especially after PacWest’s shares fell by about 51%, while at the same time, shares of several other regional banks fell by at least 10%. Eventually, the climate worsened with news that Canada’s TD Bank was canceling its plans to acquire First Horizon, also a Memphis-based regional bank, citing uncertainty over whether the merger would be approved by the regulator. It should be noted that at the beginning of the week the Federal Deposit Insurance Service spoke in favor of extending the deposit insurance system to corporate bank accounts. According to him, if the amount of deposits covered by the insurance system reaches $2.5 million, then small and medium-sized US enterprises will be covered. However, such a case requires the approval of Congress. There are more than 4,100 banks in the US.

He asks to increase the limit on the amount of deposits guaranteed by the American deposit insurance system.

After a nightmarish week for bank stocks, yesterday’s session saw a spectacular recovery led by PacWest stock, which surged 26% pre-session. It was followed by shares of Western Alliance Bancorp, which rose 18%, and Charles Schwab Corp, which rose 3%, despite widespread investor anxiety, as the latest data showed that the company’s capital outflow has been declining for the third month in a row. The concern, however, does not seem to be fading away, as the sharp rise in interest rates has caused large losses in the portfolios of US banks that have accumulated a large amount of bonds. Many investors and market analysts are discounting the fact that the regional banking crisis will not end unless the Fed cuts interest rates. Investors are, after all, concerned about banks’ exposure to mortgages and loans from large brokerages, and the risk of a sudden drop in deposits as bank customers decide to seek higher yields.

And while many investors are discounting the sector’s further problems, some believe that both the outflow of deposits and the fall in banking shares have exceeded the limits imposed by the situation. For his part, Fed President Jerome Powell argues that solving the problem of First Republic with its acquisition of JPMorgan Chase “represents an important step towards a way out of the crisis.”

Calls for investigation and anti-triage action

Calls for Washington and the US authorities to deal with the banking crisis come not only from investors and, above all, now touch upon the most pressing issues of the stock market, such as the controversial practice of short selling, i.e. shares and manipulation of the market or specific shares. US bank officials are calling on the US Securities and Exchange Commission to investigate whether such abuses played a decisive role and take action to address them.

According to a related report by MarketWatch on the stock market, with a letter to Gary Gensler, Chairman of the US Securities and Exchange Commission, the Association of American Bankers requires appropriate investigations and necessary measures to stop abuses.

As the letter usually emphasizes, “After the bankruptcy of two regional banks in March, some banks faced aggressive betting on the fall of their shares, which does not reflect either their true financial position or general conditions in the industry.”

Regarding short selling, bank executives note that it is a legal practice useful as a “financial instrument, but not when it distorts the market.” They also call on the Capital Market Commission to investigate widespread social media posts about the financial strength of individual banks, as well as the banking industry as a whole, that are untrue.

For their part, the US authorities seem to be inclined to heed the requests of the bank’s leaders.

US bank officials are calling on the Capital Markets Commission to investigate the financial soundness of some banks.

A related Reuters report said federal and state authorities are looking into the possibility that “market manipulation” may have played a role in the recent free fall in banking stocks. This report cites sources close to the relevant negotiations.

The White House eventually vowed to investigate and record “the pressure that has been put on financially sound banks because of short abuse.”

Notably, research firm Ortex calculated that in Thursday’s session alone, short selling generated $378.9 million in book profits for those who bet on regional bank stocks to fall.

At the same time, sources cited by Reuters indicate that in recent days, federal and state authorities, as well as market regulators, have been very closely investigating the practice of short selling precisely because they believe that the free fall of bank shares and the general crisis in the industry do not reflect it. fundamentals that are healthy and well capitalized.

In fact, according to White House press spokeswoman Karine Jean-Pierre, the Biden administration is closely monitoring the development of the case, but cannot intervene, since the matter is within the competence of the Securities and Exchange Commission, which will also take the necessary actions.