In light of the recent spate of US bank failures, billionaire investor Warren Buffett has urged for executives who led the US banking system into crisis to face “punishment”. The Berkshire Hathaway owner believes that bank directors “should suffer” when their banks run into trouble, attributing the crisis to “messed-up incentives” in the industry.
Buffett, also known as the “Oracle of Omaha,” made these comments following the collapse of First Republic Bank, the largest US bank to fail since the 2008 financial crisis. He expressed dissatisfaction with the handling of the failures by politicians, regulators, and the press, stating that their “very poor” messaging has frightened depositors unnecessarily.
The billionaire investor insisted that CEOs and directors must face consequences for their actions; otherwise, it sends a message that if they mismanage a bank, they can still maintain their wealth and status. This, he argued, is not a lesson that should be taught to those responsible for the economy’s behavior.
Despite his concerns, Buffett admitted he still holds some bank stocks, including Bank of America, which he favors. However, he has reduced his exposure to the sector due to the current issues. He criticized the incentives in bank regulation, stating that they are “totally crazy” and need to have a punishment system in place for those who engage in wrongdoing.
Buffett pointed to First Republic Bank’s offering of non-government guaranteed mortgages at fixed rates for large amounts as an example of an unwise business decision that went unchecked. Berkshire Hathaway Vice-Chairman Charlie Munger echoed Buffett’s concerns, emphasizing that bankers should prioritize avoiding trouble rather than getting rich, as this leads to a contradiction in values.
A recent review by the US Federal Reserve found that deregulatory changes implemented during Donald Trump’s presidency contributed to the collapse of the technology-focused lender, Silicon Valley Bank. The 2018 legislation reduced checks and controls on lending by smaller banks, leading to a less assertive supervisory approach.
Buffett also criticized the government’s communication with the public about the safety of their money, which he believes has left people feeling confused. While he does not anticipate a stalled banking system, he is preparing for the possibility, stating, “We want to be there if the banking system temporarily even gets stalled. It shouldn’t. I don’t think it will. But it could.”
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