Did short sellers deliberately drive runs on banks?

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Short Sellers' Role in US Bank Runs Debated Amidst Increased Bets

The extent to which short sellers deliberately drove runs on US regional banks, including First Republic Bank, is a subject of ongoing debate. While some observers and analysts suggested that short sellers actively worked to exacerbate bank difficulties and profit from instability, data indicates that short interest, though increasing, remained a relatively small portion of overall trading for most regional banks during the crisis. The primary drivers of stock price declines appear to have been regular stockholders selling shares amidst a broader crisis of confidence.
Increased Short Interest Observed in Troubled Banks

In the period following the collapse of Silicon Valley Bank (SVB), short interest in First Republic Bank saw a notable increase. While initially minimal, the percentage of First Republic's shares being borrowed for short bets rose to between 7% and 37% by March 31, a significant jump from the typical 3-5% average across all stocks. Similar patterns were observed with Silicon Valley Bank and Signature Bank, where increased short interest coincided with falling stock prices. This heightened activity has led some, like JPMorgan Chase & Co equity analysts, to suggest that short sellers were "working collectively to drive runs on banks."
Pre-existing Short Positions and Diverse Motivations

Interviews and public postings reveal that some short sellers had established negative positions against regional banks well before the crisis intensified. Individuals and funds were betting against SVB, Signature Bank, First Republic, and Silvergate Bank starting as early as late 2021 and throughout 2022. Dennis Kelleher of Better Markets noted that while some shorts accurately warned of mismanagement, "shorts with various motives started targeting other banks" once the initial collapse occurred. These varied motives, however, are not fully detailed, and some short sellers have rejected blame, arguing they were merely highlighting pre-existing balance sheet problems.
Short Interest as a Small Fraction of Trading

Despite the increase in short positions, data from analytics firms like S3 Partners suggests that this activity represented a small fraction of overall sector trading for most regional banks. For instance, short interest in SVB was around 5% of its stock float as of March 1, with First Republic at approximately 3% and Signature at 6%. These figures are significantly lower than in highly shorted stocks like Tesla or GameStop. S3 Partners specifically stated that "The shorts are not driving the stock price," asserting that declines were primarily driven by regular stockholders selling shares, suggesting the short sellers were not the primary cause of the stock price drops.
Silvergate Bank as an Exception

An outlier in this trend was Silvergate Bank, a lender focused on the cryptocurrency sector. This bank experienced unusually high short interest, exceeding 75%, for months leading up to its decision to wind down operations on March 8. This level of short interest was substantially higher than that seen in most other regional banks during the crisis. While overall short bets in US regional banks gained approximately US$4.76 billion in March, this increase was considered an "extraordinarily small" part of the sector's trading volume by analysts at S3 Partners.

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Did short sellers deliberately drive runs on banks?

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