Page 2 of 5  This type of ‘short-selling’ strategy has the potential to create financial instability, especially if the targeted company is a deposit-taking institution. Although a decline in a bank’s share price does not necessarily create systemic risk, there may be a risk to financial stability.
This could transpire if the information being spread by the ‘short-selling’ campaign, whether it be true or not, results in a negative feedback loop between lower investor confidence, as reflected in a decline in the equity price of the targeted institution and a loss of depositors’ and lenders’ confidence in the targeted deposit-taking institution.