PacWest shares pare gains after dividend cut fails to stem market fears

"Friday was a bit of a reprieve, but we continue to believe that equity manipulation, if unabated, presents a risk to the confidence needed for the U.S. banking system to function," Piper Sandler analyst Mark Fitzgibbon wrote in a note.

But hedge funds, which often engage in short selling, pushed back on Monday, saying in a letter to Gensler that a ban would be counterproductive. "Banning short selling will only increase market volatility, hurt price discovery, and delay a recovery in regional banks' prices," wrote Bryan Corbett, chief executive of the Managed Funds Association trade group.

The regional bank crisis stems from the Federal Reserve's steep interest rate hikes over the past year, and the situation could worsen for lenders, the main funders of small businesses, said Sean Kouplen, chairman and chief executive of Oklahoma-based Regent Bank, in an interview.

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