Berkshire Hathaway chairman and CEO Warren Buffett believes that the recent banking crisis, headlined by the rapid collapse of Silicon Valley Bank and Signature Bank, isn’t over just yet. “We’re not through the bank failures,” the Oracle of Omaha told CNBC Wednesday in an interview from Tokyo. But the 92-year-old billionaire noted that consumers shouldn’t worry about their savings after regulators at the Federal Reserve, FDIC, and Treasury Department used the “systemic risk exception” to backstop all depositors at failed U.S. banks last month.
“Depositors haven’t had a crisis,” he said, adding that, with regulators’ backing, “banks can go bust, but depositors aren’t going to be hurt.”
While some economists have cautioned that backstopping both uninsured and insured depositors could create a moral hazard issue—where bank executives are incentivized to take more risk since they know depositors are insured no matter what—Buffett believes regulators made the right choice by stepping in when they did.
“You don’t need to turn a dumb decision by [bank] managers into panicking the whole citizenry of the United States about something they don’t need to be panicked about,” he said. “We set up the FDIC to relieve the worry of people.”
In Buffett’s view, regulators had no choice but to step in after bank executives mismanaged their businesses, putting the economy at risk. The blame for the latest banking crisis lies squarely with executives who have become “too focused” on earnings, he said, leading them to do “dumb things” and forget basic “banking principles."
The billionaire warned that this type of mismanagement is a serious issue, because banks need to maintain the confidence of the public, and “they can lose it within seconds.”
“I just think the system isn’t quite right in connecting punishment to culprits on something that’s this important,” he added. “It’s incredibly important that your banking system runs well in the country. It just isn’t going to work unless you have a banking system that works, and you don’t want them [bank managers] to create periodic crises unnecessarily.”
Buffett also noted that bank failures aren’t as rare as many people think, referencing past blowups at institutions that were once thought to be “impregnable”—including Continental Illinois National Bank, which failed in 1984. To his point, since 2001, 563 U.S. banks have gone bust, according to the FDIC.
“Sometimes they go broke because they make too many dumb loans; sometimes it’s because they mismatch maturities,” Buffett said. SVB famously suffered from the latter, a mismatch in maturities which meant its investments didn’t return enough, quickly enough, to fund its deposits.
For SVB, it all started when the startup-focused bank saw an influx of deposits during the pandemic and quickly put them into long-term U.S. Treasuries and mortgage-backed securities that, in total, yielded under 2%. This was a paltry return, but it was still far more than the less risky short-term options. Then, when the Fed jacked up interest rates, SVB was forced to pay higher interest rates to depositors, but it couldn’t fund them because it was locked into low-yielding, long-term investments.
Buffett said that what SVB’s execs did during the pandemic was a classic mistake—searching for a little extra return while ignoring the risk of rising interest rates. “Bankers have been tempted to do that forever,” he argued.
But something must have been different about this crisis, because it led Buffett to sell Berkshire Hathaway’s shares in many top U.S. banks, including JPMorgan, Wells Fargo, U.S. Bancorp, and Goldman Sachs. When asked about why he sold, the billionaire said: “I did think that banking could get in a lot of trouble just because of the kinds of things they did. And I didn’t like the banking business as much as I did before.”
However, Buffett didn’t sell his shares in Bank of America, and he gave an unusual answer when asked why. “They made a very decent deal for us, and I like Brian Moynihan [BofA’s CEO] enormously. And—I just don’t want to sell it,” he told CNBC.
Berkshire famously made a $5 billion bet on Bank of America in 2011, when it was struggling to recover after the Global Financial Crisis. It was a vote of confidence in CEO Moynihan, who had taken control of the firm just a year earlier in January 2010. Moynihan promised to turn BofA into a profitable enterprise, earning $10 billion a year—and he turned out to be right. In 2022, the bank earned $26 billion, and its shares have soared in the years since Buffett’s investment, earning him roughly seven times what he paid.
