Noting that recent stock market activity from several banks seemed disconnected from the underlying fundamentals of banking health, the American Bankers Association yesterday urged the Securities and Exchange Commission to investigate the short sale of bank shares.

The ABA noted that “short selling has followed relatively favorable earnings reports from some of the banks in question and similar institutions.” While the ABA acknowledged the role of short selling in generating liquidity and price discovery, the association said the damage caused by short selling that goes against fundamentals lies with small investors.

Consequently, ABA reiterated that it is “unchangeably opposed to short selling practices that distort markets through manipulation and abuse. We urge the SEC to consider all of its existing tools and take action to reduce avenues for abusive business practices and restore investor confidence.” The association called on the SEC to, at a minimum, take “appropriate enforcement action against market manipulation and other abusive short selling practices.”

SEC Chairman Gary Gensler issued a brief statement reiterating that the SEC continues to monitor market activity. “In times of increased volatility and uncertainty, the SEC is particularly focused on identifying and prosecuting any form of misconduct that could threaten investors, capital formation, or the markets in general,” Gensler said.

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