(Reuters) - Short sellers made $14.3 billion in paper profit from their bearish bets on global banking stocks in March, according to analytics firm S3 Partners, as the collapse of U.S. lender Silicon Valley Bank reverberated across the sector.

About 75% of total short selling is in U.S., Canadian and European banking stocks.

The S&P 500 banks index is down 19% in March, heading for its worst monthly performance since March 2020 as the turmoil among U.S. regional lenders sparked fears of contagion.

Short selling in worldwide banking stocks returned a 17.2% profit on an average short interest of $82.4 billion, according to S3 Partners.

About 78% of every stock and 97% of every dollar shorted in the banking sector was profitable this month, S3 Partners said.

However, since the last week, banking stocks have shown signs of a revival, with regional U.S. lender First Citizens BancShares scooping up the assets of failed peer Silicon Valley Bank on Monday, a vote of confidence for the battered sector.

The S&P 500 banking index bounced back 6.5% from a more than two-year low on Friday.

Excluding SVB Financial Group and Signature Bank NY Bank, sector short sellers are down 4.5% since March 23, giving back $587 million of their March profits.

"If this upward price trend continues in the rest of the regional banks, we should see short covering as short sellers rush to realize some of their mark-to-market profits," S3 Managing Director Ihor Dusaniwsky said.

When there is a rush of demand from short sellers to exit bearish bets due to a rise in a stock's price, it pushes prices even higher, resulting in a short squeeze.

(Reporting by Medha Singh in Bengaluru; Editing by Pooja Desai)