”I read earlier that both fed and state regulators are starting to look into possible market manipulation and/or short attacks on the regionals by various parties.”

Trading in the shares of two more regional US lenders was temporarily suspended on Thursday amid a widening crisis for the country’s mid-sized banks.
Regulators stepped in to halt trading in the Los Angeles-based PacWest and Arizona’s Western Alliance following dramatic drops in their share prices. It came after another mid-sized bank, First Republic, was sold to JP Morgan earlier this week. Depositors had pulled $100bn from First Republic, fearing their money was no longer safe.
PacWest had sought to calm markets on Wednesday and said it was in talks with several potential investors after its shares fell by as much as 60%. But the sell-off continued on Thursday and affected other regional banks. Shares in PacWest fell 50% on Thursday after Bloomberg News reported that the lender was considering strategic options, including a sale or a fundraising round.
The bank sought to reassure investors by saying it had not experienced unusual deposit flows. “Recently, the company has been approached by several potential partners and investors – discussions are ongoing,” it added.
Western Alliance’s share price plummeted 45% after the Financial Times reported it was exploring strategic options, including a potential sale, which the bank strongly denied. It called the story “absolutely false” and said it had not experienced unusual deposit flows after the sale of First Republic. Its shares ended Thursday down 38%
First Republic was the third US bank failure to be swept up in the crisis, the worst since 2008, after the collapse of Silicon Valley Bank and Signature in March.
Bill Ackman, chief executive of the New York hedge fund Pershing Square, warned that the entire US regional banking system was at risk. In a tweet before PacWest’s statement, he wrote: “Confidence in a financial institution is built over decades and destroyed in days. As each domino falls, the next weakest bank begins to wobble.
“We are running out of time to fix this problem. How many more unnecessary bank failures do we need to watch before the FDIC [Federal Deposit Insurance corporation], and our government wake up? We need a systemwide deposit guarantee regime now.”

The regional banking system is at risk. SVB's depositors' bad weekend woke up uninsured depositors everywhere. The rapid rise in rates impaired assets and drained deposits. Zeroing out shareholders and bondholders massively increased the banks’ cost of capital. CRE losses loom.…
— Bill Ackman (@BillAckman) May 3, 2023

PacWest said total deposits were $28bn (£22.2bn) as of Tuesday. “Our cash and available liquidity remains solid and exceeded our uninsured deposits,” it said.
Other, less well-known regional banks have also been affected. Shares in the Dallas-headquartered Comerica were down 13%, and Zions Bancorporation fell by about 16% on Thursday. Unlike in the UK, smaller, regional banks play a big role in the economy, accounting for nearly half of US consumer and business lending.
The sell-off came despite reassurances from the chair of the Federal Reserve, Jerome Powell, that the US banking system remained “sound and resilient”, after the central bank voted to raise interest rates to a 16-year high. The benchmark interest rate is now at a range of 5-5.25%.
On Monday, JP Morgan, the biggest US bank, stepped in to acquire a majority of First Republic’s assets in a $10.6bn deal after regulators seized the lender, which became the largest US bank failure since 2008. It was the second largest collapse in US banking history, beaten only by the 2008 demise of Washington Mutual, which was also sold to JP Morgan.
“You can’t ask JP Morgan to come to the rescue again,” said Neil Wilson, the chief markets analyst at the trading platform markets.com. He pointed out that Powell had said: “It’s probably good policy that we don’t want the largest banks doing big acquisitions.”
Wilson added: “No, but that is what happened, because it was the ‘best’ outcome for the banking system … The quicker the Fed gets to a point of cutting rates, the better for these mid-size banks, but there is a lot more time and likely a lot more pain before we get there.”

Shares in two more US regional banks have been suspended. Regulators moved in to halt trading in Los Angeles-based PacWest and Arizona’s Western Alliance on Thursday after they became the latest victims of an escalating crisis that began with Silicon Valley Bank in March.
The message from central banks and bank supervisors is that this is not a rerun of the global financial crisis of 2008. That may be true. With the exception of Switzerland’s Credit Suisse, European banks have escaped the turmoil. It is specific US banks that are the problem.
There are a number of reasons for that: the business models of the banks concerned; failures of regulation; the large number of small and mid-sized banks in the US; and the rapid increase in interest rates from the country’s central bank, the Federal Reserve.
Luis de Guindos, vice-president of the European Central Bank (ECB), remarked on Thursday that “the European banking industry has been clearly outperforming the American one”. Although he will be praying his words do not come back to haunt him, he is broadly right. European banks, including those in the UK, do look more secure than those in the US – primarily because they tend to be bigger and more tightly regulated.
Despite being the 16th biggest bank in the US, Silicon Valley Bank was not considered systemically important and so was less stringently regulated than institutions viewed by federal regulators to be more pivotal. Many of its customers were not covered by deposit insurance and were heavily exposed to losses on US Treasury bonds as interest rates rose. The other banks that failed subsequently have tended to share many of the same characteristics: they were regionally based and are vulnerable to rising borrowing costs.
Unless the Fed rides to the rescue with cuts in interest rates, the options are: amalgamation, regulation or more banks going bust. The response of the US authorities suggests little appetite for a laissez-faire approach.
According to official data, the US has more than 4,000 banks – an average of 80 for each of the 50 states. The number has fallen by more than two-thirds since the peak of more than 14,000 in the early 1980s, but there is certainly room for greater consolidation. In an age of instant internet bank runs, customers will be attracted to the idea that big is beautiful.
The US authorities certainly do not seem averse to further amalgamation. When First Republic ran into trouble, it was seized by the Federal Deposit Insurance Corporation and its deposits and assets were sold to one of the giants of US banking – JP Morgan Chase. Inevitably, there will be more takeovers and fire sales of assets as alternatives to bank failures. It is reasonable to assume that in 10 years’ time the number of US banks will be considerably smaller than it is today.
What’s more, the banks that remain – including those that are not taken over – are likely to be more tightly regulated and more closely supervised. Even if the Fed, the ECB and the Bank of England are right and a repeat of the global financial crisis has been averted, lessons are already being learned.

Increased short-selling activity and volatility in shares have drawn increasing scrutiny by federal and state officials and regulators in recent days, given strong fundamentals in the sector and sufficient capital levels, said the source, who was not authorized to speak publicly.
"State and federal regulators and officials are increasingly attentive to the possibility of market manipulation regarding banking equities," the source said.
...
Short selling ... is not illegal and considered part of a healthy market. But manipulating stock prices, which the SEC has defined as the 'intentional or willful conduct designed to deceive or defraud investors by controlling or artificially affecting" stock prices, is.

May 3, 2023
PACIFIC WESTERN BANK ISSUES UPDATE
FOR IMMEDIATE RELEASE
...
The bank has not experienced out-of-the-ordinary deposit flows following the sale of First Republic Bank and other news. Core customer deposits have increased since March 31, 2023, with total deposits totaling $28 billion as of May 2, 2023 with insured deposits totaling 75% vs. 71% at quarter end and 73% as of April 24, 2023.

I suppose we will end up finding a number of answers to that question. Will some ChatGPT-style large language model manage to do some insider trading? Will it, like, ingest some corpus of data that includes inside information, and then use it to answer questions like “which stocks should I buy?” Will some big company’s corporate development department use the model to answer questions like “should we buy Company X and what price should we pay for it,” and will the developers of the model use that information nefariously? Will the model itself become sentient, get a Robinhood account and use that information nefariously? Etc.
Or I mean will someone ask ChatGPT a question like “what companies are frauds,” and ChatGPT will cheerfully and confidently say “oh Company Y is a total fraud, their revenues are super inflated,” and then people will short the stock, and then it will turn out that Company Y is fine and ChatGPT is just really good at confidently making stuff up? Is that securities fraud? By whom? (Or: Ask “what stocks are good,” ChatGPT says “Company Z is great, they have found a cure for cancer and their revenue will double,” people buy the stock, it was all made up.) Will sell-side analysts or journalists use ChatGPT to do their work, and will ChatGPT introduce market-moving factual mistakes?
Lots of fun possibilities. But the most immediate way in which ChatGPT is going to be securities fraud is the usual “everything is securities fraud” way:

• 1) ChatGPT is going to be disruptive to some number of businesses and industries.
• 2) Some companies will lose money because ChatGPT disrupts their business.
• 3) This will be bad, for them, and their stocks will drop.
• 4) Every bad thing that happens to a public company can be characterized as securities fraud: “You didn’t sufficiently warn us about the bad thing, so we bought the stock thinking it was good, but then the bad thing happened and the stock dropped, so we were defrauded.”

ChatGPT risk factors are starting to be included in securities offering documents, and the risks are starting to be realized:

Chegg Inc. plummeted 42% after warning that the ChatGPT tool is threatening growth of its homework-help services, one of the most notable market reactions yet to signs that generative AI is upending industries.
The company, which offers online guidance for students taking tests and writing essays, also gave revenue and profit forecasts for the current quarter that fell well short of analysts’ estimates. Chegg makes much of its money from subscriptions, which start at $15.95 a month, a revenue source that’s in peril if students see AI chatbots as an alternative to paying.
The impact of ChatGPT, an OpenAI tool that surged in popularity last year, began to be felt this spring, Chief Executive Officer Dan Rosensweig said in prepared remarks accompanying Chegg’s first-quarter earnings Monday.

And I tell you what, when I see that a public company has announced bad news and its stock dropped, I look for the lawsuits. We are early yet — the stock dropped yesterday — but lawyers move fast; I have not yet seen any lawsuits filed, but at least two law firms have announced “investigations” of Chegg and are looking for clients.
At this point the lawsuits seem a bit far-fetched: “You should have warned us months ago that artificial intelligence would hurt your business” is unfair given how quickly ChatGPT has exploded from nowhere to become a cultural and business phenomenon. But now everyone is on notice! If you are not warning your shareholders now about how AI could hurt your business, and then it does hurt your business, you’re gonna get sued.