Reported by Andrew Ross Sorkin, Ravi Mattu, Bernhard Warner, Sarah Kessler, Lauren and Ephrat Livni

As the shares of another regional bank tumbled on Thursday, Jamie Dimon, the JPMorgan Chase chief, ratcheted up the pressure on regulators to “finish” the crisis at small and midsize lenders, and joined the chorus calling for an investigation into short sellers as part of any solution.

Short sellers are making huge returns on regional bank stocks. These traders, who profit from the falling share price of companies they target, have made more than $7.5 billion in 2023 going after smaller lenders, according to S3 Partners, a financial data provider. They likely added to that tally on Thursday as shares in PacWest, the most shorted regional bank, closed nearly 23 percent lower after it announced a new flight of deposits last week.

Mr. Dimon wants regulators to step up their scrutiny. The banking boss has been at the heart of efforts to resolve the crisis, and JPMorgan bought the struggling First Republic this month. “The S.E.C. has the enforcement capability to look at what people are doing by name in options, derivatives, short sales,” he told Bloomberg. “If someone’s doing anything wrong, people are in collusion or people are going short and then making a tweet about a bank, they should go after them and vigorously,” Mr. Dimon added.

His intervention echoes calls by the American Bankers Association, a trade group, which called for the Securities and Exchange Commission to act against “market manipulation and other abusive short selling practices.”

The S.E.C. isn’t planning to ban short selling. But DealBook hears that there is growing pressure on the regulator to implement short-seller rules that were required under the Dodd Frank Act. Section 929X of the act requires the S.E.C. to adopt rules around the disclosure of short positions. The S.E.C. never fully followed through with that mandate, and there is some debate over whether it means revealing individual short positions or aggregate investments. 

Proponents say this would add much needed transparency to the market, because other investors, the management of targeted companies and policymakers need to understand what is really happening when a stock is under attack.

Opponents say short sellers aren’t the real problem. They say disclosing who was shorting a stock would give companies a reason to avoid communicating with those investors, preventing important conversations. “There’s always been a worry that if you had short-sale disclosure, companies would use that as a weapon to not talk to people,” Jay Clayton, the former head of the S.E.C., told DealBook.

And, critics say, disappearing deposits are the real issue in the current crisis.

Read full report: https://www.nytimes.com/2023/05/12/business/dealbook/jamie-dimon-short-sellers-banks.html