Warren Buffett, the CEO and Chairman of Berkshire Hathaway on Wednesday warned that more bank failures could be on the horizon. However, he reassured depositors that they should not be worried as the system is set up to protect their deposits.
During an interview with CNBC's Becky Quick in Tokyo, Buffett said, "We're not over bank failures, but depositors haven't had a crisis."
He added that “banks can go bust, but depositors will not be hurt.”
Buffett's comments come after the recent collapse of Silicon Valley Bank and Signature Bank, which prompted regulators to provide an additional funding facility for troubled banks.
The SVB Financial Group, which does business as Silicon Valley Bank (SVB), was shut down by the US regulators on March 10 and took control of its deposits after the high-tech lender’s share price nosedived.
Following this, Credit Suisse, the second-largest bank in Switzerland, collapsed in March 2023 and was bought by rival UBS for $3.3 billion.
The collapse of these three banks sent shock waves through the global financial system.
According to Buffett, some of the "dumb" things that banks do periodically were exposed during this period, including having mismatched assets and liabilities, as well as questionable accounting practices.
“Bankers have been tempted to do that forever.” The 92-year-old believes that some bankers will continue this behavior, which puts shareholders at risk. However, he stressed that there was unnecessary fear and panic about depositors losing their money, and that the system is set up to protect the entire nation's deposits.
“The costs of the FDIC are borne by the banks. Banks have never cost the Federal Government a dime. The public doesn’t understand that,” said Buffett.
“Nobody is going to lose money on a deposit in a U.S. bank. It’s not going to happen... you don’t need to turn a dumb decision by managers into a panicking the whole citizenry of the United States about something they don’t need to be panicked about,” he added.
Buffett emphasised that it's crucial for banks to retain the confidence of the public, as they can lose that confidence in seconds, as highlighted in the recent bank failures.
Buffett has a notable history of being a "white knight" for struggling banks. One of his most famous examples was when he provided Goldman Sachs with a $5 billion cash injection in 2008, after the Lehman Brothers collapse.
Similarly, in 2011, he demonstrated his confidence in Bank of America by investing $5 billion, which helped the beleaguered bank to regain stability.
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