Short sellers are ratcheting up their bets against U.S. regional banks even as concerns about the sector ease following the failures of several lenders in recent months.
Short interest as a percentage of shares outstanding in the SPDR S&P Regional Banking ETF (KRE) rose to 92% from 74% in the past week, according to data from analytics firm S3 Partners.
The short interest as a percentage of the tradeable float for the $28.6 billion U.S. Financial Select Sector SPDR Fund (XLF) has increased by more than 50% since March.
Short sellers essentially bet that a stock price is going to decline over a set period of time.
Trading in the stocks of U.S. regional banks has been extremely volatile since Silicon Valley Bank, a regional lender based in California, failed in March of this year.
Since then, several other U.S. regional banks have also failed and been taken over by government regulators.
The share prices of regional banks have largely trended lower over the past two months, with some stocks, such as those of PacWest Bancorp (PACW), down more than 75% on the year.
Shares of Western Alliance Bancorp (WAL), another regional lender, rose in recent trading after the bank was able to demonstrate that its deposits had grown by more than $2 billion U.S. since the end of this year’s first quarter.
Still, hedge funds and other institutional investors continue to increase their short positions against U.S. regional banks, with some money managers saying they believe the U.S. banking crisis has only paused and is likely to worsen in coming months.
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