The scourge of London’s ‘American candy’ stores

Should US regulators ban short-selling of bank stocks? That’s a hot topic as investors refuse to accept reassurance from the Fed chairman Jerome Powell that the recent banking crisis-that-wasn’t is over. Following JPMorgan’s rescue of First Republic, shares in other regional banks such as PacWest in Los Angeles, Western Alliance (Phoenix) and First Horizon (Memphis) have fluctuated wildly and fingers have pointed at short-sellers – who borrow shares they think are about to fall in order to sell, buy back cheaper and pocket a profit.

That’s bad, say critics, in the broad sense that it’s a negative form of investment, the reverse of backing companies you believe in; and much worse if sellers spread false rumours to push shares down. To which defenders retort that most short-sellers are serious analysts rather than cynical manipulators; that short-selling enhances liquidity and ‘price discovery’; and that profiteers who boost shares by spreading fake positive news are at least as wicked but take less flak.