Um, could someone explain to these folks that the monster rally in bank stocks was due to short covering? No. the bankers would rather live in the illusion that the dim outlook for their industry is due solely to the machinations of evil short sellers, not their mismanagement.
Objectively speaking, the downside of a low stock price is greater risk of takeover (these banks should be so lucky) and higher cost in capital raising. The latter is the only remotely defensible reason for this move (assuming it would work, which is highly dubious) since most banks badly need to rebuild their balance sheets.
If their request is granted, bank executives will have fewer people to blame for their (in their mind) depressed share prices. And as many cynics noted, being one of the 19 singled out for protection against naked shorts was an indication that those institutions were in precarious shape. So now the ABA wants the whole industry tarred with the same brush?
From Reuters (hat tip reader Megan):
An emergency move by U.S. securities regulators this week aimed at curbing manipulative short-selling in some major financial firms should be expanded to all publicly traded banks, or it could erode confidence in the banking industry, a top trade group said.
A letter from the American Bankers Association to the Securities and Exchange Commission this week stressed that banks could be vulnerable as they are suffering from the financial turmoil stemming from the downturn in the U.S housing market…
On Friday the SEC, the U.S. markets watchdog, amended its action from earlier in the week but limited the protection to 19 firms including U.S. housing finance giants Fannie Mae and Freddie Mac whose shares plunged on concerns they were undercapitalized.
The rule also applies to the stocks of 17 Wall Street firms, primary dealers that have access to the Federal Reserve’s discount window, such as Citigroup Inc…
The ABA said the majority of the 8,500 banks in the United States are well-capitalized and capital levels are not affected by their stock prices. However, it said people with bank accounts might equate stock drops with the safety of their deposits.
That is the lamest excuse I ever heard. No one every voiced that worry during the S&L crisis, when banks were falling over on a regular basis.