Billionaire investor Warren Buffett isn’t worried about the state of the US banking industry — but he would like to see much tougher consequences for top leaders of the banks that fail.
In the wake of the failure of Silicon Valley Bank, Buffett reflected on the public’s frustration after the 2008 financial crisis.
“All kinds of trouble [was] caused by the banks. But bank executives … they all continue to live fine. They may have lost their job, but they got their pensions,” he said in an interview Wednesday with CNBC. “There have got to be consequences to the people who make the decisions. Penalizing the shareholders later on by billions of dollars worth of fines … that doesn’t deter the bad action.”
Specifically, Buffett thinks presidents and CEOs of failed banks should lose their retirement savings and that directors should have to return five years’ worth of their lucrative salaries.
He admitted neither is likely to happen.
“That will not be met by great enthusiasm from a lot of friends of mine,” he said. “I don’t know anybody that went back to flipping burgers at McDonald’s or something, after they screwed up the system in a big way in 2008 and ’09.”
Still, he agrees with a number of banking experts who say the problems exposed over the last month following the failure of Silicon Valley Bank are nowhere near as bad as the 2008 financial crisis.
Buffett also noted that customers of SVB and Signature Bank — a New York bank that failed shortly after SVB — don’t have to worry about losing their money because the Federal Deposit Insurance Corporation has guaranteed all deposits for those two banks — even those above the normal $250,000 limit.
The FDIC’s move was an extraordinary one, and Buffett said it gives him confidence about the state of the industry. It will be the banks, not US taxpayers, who will have to pay if the costs of bank failures rise, he added.
The lack of penalties for bank leaders is one reason Buffett’s Berkshire Hathaway has sold off most of its bank stocks, including some the company held for 30 years, he said.
“I just think the system isn’t quite right in terms of connecting punishment to culprits on something that is so important,” he said.
Stiffer penalties would also help bolster both investors’ and bank customers’ confidence in the banking system, Buffett said, noting that “there is no penalty attached to bad behavior and it does really, really affect the system when people lose confidence in banks.”
As the fall of SVB showed, that confidence can be lost “in seconds,” Buffett said. “We saw a country that was not worried about banks until about Wednesday or Thursday of the week when Silicon Valley [collapsed], and all of a sudden everybody was all worried about it [the banking system] all over the country.”
Yet thanks to the FDIC, Buffett said, depositors don’t need to worry. In fact, he said he would bet $1 million that no US bank depositors will lose money over the next year and invited someone else to put up $1 million that there will be losses — with the winner determining which charity would get the $2 million at the end of the year.
Buffett also weighed in about the blame some place on Federal Reserve for the current banking crisis. Critics have slammed the lack of bank oversight and say the Fed raised interest rates so quickly that the Treasuries held by banks lost more value than banks expected. But Buffett has only praise for Fed Chair Jerome Powell.
“I do not think I could run the Fed as well as Jay Powell has done,” Buffett said. “He’s been terrific.”
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