BALTIMORE (TheStreet) -- It's been a tough year for regional banks. While investors mulled over the fate of the big three banks -- Citigroup(C) - Get Report, Bank of America(BAC) - Get Report, and JP Morgan(JPM) - Get Report -- regional bank stocks took a knocking alongside them, whether or not they had exposure to the toxic assets that were grabbing the headlines.

With Dubai's debt situation unfolding this week, the fate of financial stocks is in question once again.

What better time to look for

short squeezes

?

A short squeeze is the buying frenzy that ensues when a heavily shorted stock starts to look attractive again to investors. As more and more of the short investors buy shares to cover their positions, share prices skyrocket. Almost anything can trigger a short squeeze, including trumping earnings expectations, winning a lawsuit, unveiling a new product and even announcing a management change.

One of the best indicators of just how high a short-squeezed stock could go is the short-interest ratio.

The short interest ratio divides shares short by average daily trading volume in order to get a ballpark estimate of the number of days it would take for short-sellers to cover their positions. The higher the short ratio, the higher the potential profits when the shorts get squeezed.

To be sure, there's good reason why regional banks are so heavily shorted as a group. Mixed exposures to varying types of questionable assets and a whole new upcoming set of adjustable rate mortgage resets are enough to make holding on to heavily shorted bank stocks risky for the long term.

And with new accounting standards set to take hold in the beginning of 2010, bank balance sheets could be negatively affected. But for a short term squeeze play, a few banks look like prime opportunities right now.

Each week, Stockpickr creates a portfolio of stocks this week with high short interest ratios and the catalysts to trigger a squeeze. Here's a look at

this week's potential plays

.

Buffalo, N.Y.-based

M&T Bank

(MTB) - Get Report

is a best-in-breed regional banking company that's seen its shares rally 14% since January.

The bank, which counts billionaire investor Warren Buffett (check out

Buffett's portfolio

) among its shareholders, has a long history of growing earnings and beating expectations -- including earning income of $5 per share in 2008, when most banks were hemorrhaging money.

Like all of the banks on our list this week, M&T enjoys thick margins and has focused primarily on conservative lending practices in the past. Management is deeply invested in the company, and founder Robert Wilmers is still serving as the company's CEO, a fact that should reassure shareholders who trust his management style and business acumen.

All told, M&T is a solid bank that offers investors a limited amount of risk relative to its industry, though that hasn't stopped the short-sellers from pushing the company's short interest ratio to 17.91.

Among those likely hoping for a squeeze are Lisa Welch and Susan Curry, portfolio managers for the

John Hancock Regional Bank Fund

(FRBAX). The fund also owns stakes in regional banks

BB&T

(BBT) - Get Report

and

KeyCorp

(KEY) - Get Report

.

Shareholders of

WestAmerica Bancorp

(WABC) - Get Report

are having a pretty good month, with shares of the regional bank up 12% following news that the company paid off the balance of its TARP investment to the government.

That should come as little surprise for the company, which was named as the No. 1 midsized bank by

U.S. Banker

magazine last month. "Our focus on maintaining a high-quality loan portfolio, building a low-cost funding base, and managing to low operating costs generates earnings that are consistently stronger than our peers," Westamerica Bancorp CEO David Payne said in response to the news.

Judging from the bank's short interest ratio of 21.69, however, it's clear that there are plenty of people who see rougher days ahead. That short interest ratio suggests that at current volume levels it would take nearly 22 days for short-sellers to wind out their positions -- a perfect opportunity for a short squeeze.

One of WestAmerica's biggest institutional owners is the

Schroder U.S. Opportunities Fund

(SCUIX), which holds Morningstar's coveted five-star rating. Schroder's other positions include stakes in

Gartner

(IT) - Get Report

and

Intermec

(IN)

.

Lafayette, Louisiana-based

IberiaBank

(IBKC) - Get Report

is a bank holding company that owns 150 offices in Louisiana, Arkansas and Tennessee and currently carries a short ratio of 10.13.

Unlike many of its competitors, IberiaBank splits its business between banking, title services and mortgage brokerage, a combination that's led to 20.5% profit margins in the company's latest quarterly release.

IberiaBank is owned by the

Legg Mason Partners Financial Services Fund

(SBFAX), a small, $60 million fund that also owns shares of credit card processor

Visa

(V) - Get Report

and financial services firm

Ameriprise Financial

(AMP) - Get Report

.

For the rest of this week's short-squeeze opportunities, including

Tompkins Financial

(TMP) - Get Report

and

Suffolk Bancorp

(SUBK)

, check out the

Regional Bank Short Squeezes portfolio

at Stockpickr.

And to find short-squeeze plays of your own, be sure to check out the

Stockpickr Answers

community for insights and investment ideas.

-- Written by Jonas Elmerraji in Balitmore.

Now see this week's Dividend Stocks >>>

At the time of publication, author had no positions in stocks mentioned.

Jonas Elmerraji, based out of Baltimore, is the editor and portfolio manager of the Rhino Stock Report, a free investment advisory that returned 15% in 2008. He is a contributor to numerous financial outlets, including Forbes and Investopedia, and has been featured in Investor's Business Daily, in Consumer's Digest and on MSNBC.com.