RELEASE: Members of Congress Urge the SEC to Combat Illegal, Manipulative Short Selling Harming Small, Midsize, & Regional Banks

May 17, 2023
Press

WASHINGTON, D.C. — This week, three Members of the House Financial Services Committee are urging the SEC to combat unlawful market manipulation and illegal short selling targeting small, medium, and regional banks. The letter was sent this week to Securities and Exchange Commission (SEC) Chair Gary Gensler by Reps. Josh Gottheimer (NJ-5), David Scott (GA-13), and Vicente Gonzalez (TX-34).

According to public reports, market manipulation and abusive short-selling practices are targeting strong U.S. banks. In recent weeks, short sellers have made targeted and abusive trades that are fundamentally disconnected from the financial condition of certain U.S. banks. According to a Federal Reserve report, despite the failure of Silicon Valley Bank, our nation’s banking system is largely sound and resilient, with strong capital and liquidity. 

Short sellers are currently taking advantage of perceived instability in the banking system to make a quick profit. The abusive trading practices of these short sellers are undermining economically-sound financial institutions and threatening broader financial stability. The steps taken by federal regulators following recent bank failures were critical to prevent contagion, but additional action is necessary to calm markets and ensure the resilience of our banking system.

The Members of Congress are urging the SEC to send a clear message and take appropriate enforcement action against any illegal, manipulative practices, and to consider using its authority to block illegal practices in financial markets and restore the confidence of investors in U.S. banks. 

“Small, medium, and regional banks are the backbone of our local economies, providing our constituents with access to credit, capital, and opportunity. Local and regional banks provide much needed competition in the banking sector and keep us from a world where Americans’ only option is to do business with a handful of the largest banks,” the Members of Congress wrote in a letter to SEC Chair Gary Gensler this week.“Short sellers are targeting the financial institutions that provide critical services in our communities. It is vital that the SEC send a clear message and take appropriate enforcement action against unlawful market manipulation, as well as potential illegal and abusive short selling. The SEC should consider using its authority to block illegal practices in financial markets and restore the confidence of investors in U.S. banks.”

Full text of the letter can be found here and below:

May 16, 2023

The Honorable Gary Gensler

Chair

Securities and Exchange Commission

100 F Street, N.E.

Washington, D.C. 20549

Dear Chair Gensler:

We are writing to share our concern with reports of market manipulation and abusive short-selling practices targeting the equity securities of healthy U.S. banks. In recent weeks, short sellers have made targeted and abusive trades that are fundamentally disconnected from the financial condition of certain U.S. banks. This market activity threatens the U.S. banking system at-large and should be vigilantly monitored for misconduct. We encourage the Securities and Exchange Commission (SEC) to consider using existing authorities to curb potential illegal activity, including manipulation and other abuses that may undermine the financial institutions supporting our communities.

Recent high-profile bank failures set off a wave of uncertainty regarding the strength and soundness of the banking system, forcing prudential regulators to step in to calm depositors and prevent runs at well-managed banks nationwide. These actions were meant to assure Americans that the failures of a small number of poorly managed institutions would not affect the stability of small, medium, and regional banks that don’t suffer from the same management failures. According to a report issued by the Federal Reserve, despite the failure of Silicon Valley Bank, our nation’s banking system is largely sound and resilient, with strong capital and liquidity.  

Short sellers are currently taking advantage of perceived instability in the banking system to make a quick profit. Their abusive trading practices are undermining economically-sound financial institutions and threatening broader financial stability. The steps taken by federal regulators following recent bank failures were critical to prevent contagion, but additional action is necessary to calm markets and ensure the resilience of our banking system.

In the 2008 financial crisis, banks were “too big to fail.” We cannot encourage a system where banks are “too small to survive.” Small, medium, and regional banks are the backbone of our local economies, providing our constituents with access to credit, capital, and opportunity. Local and regional banks provide much needed competition in the banking sector and keep us from a world where Americans’ only option is to do business with a handful of the largest banks.

Short sellers are targeting the financial institutions that provide critical services in our communities.  It is vital that the SEC send a clear message and take appropriate enforcement action against unlawful market manipulation, as well as potential illegal and abusive short selling. The SEC should consider using its authority to block illegal practices in financial markets and restore the confidence of investors in U.S. banks. 

Thank you for your attention to this matter. We stand ready to assist you in your efforts to prevent misconduct that threatens investors and the stability of the U.S. financial system.

Sincerely,

Josh Gottheimer

MEMBER OF CONGRESS

David Scott

MEMBER OF CONGRESS

Vicente Gonzalez

MEMBER OF CONGRESS

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