Investing legend Warren Buffett on April 12 told CNBC that there could be more bank failures down the road, but depositors should not be worried.
The Berkshire Hathaway chairman and CEO interviewed from Tokyo where he was visiting to show support for the five trading houses he recently invested in.
The collapse of Silicon Valley Bank and Signature Bank last month — the second- and third-largest bank failures in U.S. history — prompted extraordinary rescue action from regulators, who backstopped all deposits in the failed lenders and provided an additional funding facility for troubled banks.
The “Oracle of Omaha” said some of the “dumb” things that banks do periodically became uncovered during this period, including having mismatched assets and liabilities as well as questionable accounting.
“Bankers have been tempted to do that forever,” Buffett said. “Accounting procedures have driven some bankers to do some things that have helped their current earnings a little bit and caused the recurring temptation to do get a little bit bigger spread on record, a little more than earnings.”
Buffett said some bankers will continue this behaviour and that will put the shareholders in some of the stocks at risk.
But the 92-year-old investor said there was unnecessary fear and panic about depositors losing their money, when 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 stressed that it’s crucial that banks retain the confidence of the public, and they can lose that confidence in seconds, as highlighted in the recent blow-up.
Historically, Buffett has acted as a white knight for troubled banks. Buffett famously injected $5 billion into Goldman Sachs after Lehman Brothers collapsed in 2008. A major show of faith was Buffett's injection of $5 billion into beleaguered Bank of America in 2011.
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