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Berkshire Hathaway CEO Warren Buffett on Saturday assailed regulators, politicians and the media for confusing the public about the safety of U.S. banks and said that conditions could worsen from here.
Buffett, when asked about the recent tumult that led to the collapse of three mid-sized institutions since March, launched into a lengthy diatribe about the matter.
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“The situation in banking is very similar to what it’s always been in banking, which is that fear is contagious,” Buffett said. “Historically, sometimes the fear was justified, sometimes it wasn’t.”
Berkshire Hathaway has owned banks from early on in Buffett’s nearly six-decade history at the company, and he’s stepped up to inject confidence and capital into the industry on several occasions. In the early 1990s, Buffett served as CEO of Salomon Brothers, helping rehabilitate the Wall Street firm’s tattered reputation. More recently, he injected $5 billion into Goldman Sachs in 2008 and another $5 billion in Bank of America in 2011, helping stabilize both of those firms.
Ready to act
He remains ready, with his company’s formidable cash pile, to act again if the situation calls for it, Buffett said during his annual shareholders’ meeting.
“We want to be there if the banking system temporarily gets stalled in some way,” he said. “It shouldn’t, I don’t think it will, but it could.”
The core problem, as Buffett sees it, is that the public doesn’t understand that their bank deposits are safe, even those that are uninsured. The Berkshire CEO has said regulators and Congress would never allow depositors to lose a single dollar in a U.S. bank, even if they haven’t made that guarantee explicit.
The fear of regular Americans that they could lose their savings, combined with the ease of mobile banking, could lead to more bank runs. Meanwhile, Buffett said that he keeps his personal funds at a local institution, and isn’t worried despite exceeding the threshold for FDIC coverage.
“The messaging has been very poor, it’s been poor by the politicians who sometimes have an interest in having it poor,” he said. “It’s been poor by the agencies, and it’s been poor by the press.”
First Republic
Buffett also turned his ire on bank executives who took undue risks, saying that there should be “punishment” for bad behavior. Some bank executives may have sold company stock because they knew trouble was brewing, he added.
For example, First Republic, which was seized and sold to JPMorgan Chase after a deposit run, sold its customers jumbo mortgages at low rates, which was a “crazy proposition,” he said.
“If you run a bank and screw it up, and you’re still a rich guy… and the world goes on, that’s not a good lesson to teach people,” he said.
Berkshire has been unloading bank shares, including that of JPMorgan Chase and Wells Fargo, since around the start of the 2020 pandemic.
Recent events have only “reconfirmed my belief that the American public doesn’t understand their banking system,” Buffett said.
He reiterated several times that he had no idea how the current situation will unfold.
“That’s the world we live in,” Buffett said. “It means that a lighted match can turn into a conflagration, or be blown out.”