Berkshire Hathaway boss Warren Buffett doesn't mind upsetting his friends.
Despite the billionaire rubbing shoulders with the Wall Street elite for decades, Buffett has called for harsher penalties on CEOs, presidents and directors of failed banks.
His call comes after a slew of problems in the sector in recent months, following the collapse of Silicon Valley Bank and later Signature Bank being shut down by the New York State Department of Financial Services.
Credit Suisse suffered a wobble before a $3.2 billion rescue deal was agreed with UBS—a process that left certain types of bond holders out in the cold and required billions of francs of Swiss taxpayer money to be used as a guarantee to stabilize the market.
In the future, Coca Cola investor Bufftet wants to see CEOs of busted banks held accountable—namely by forcing them to give back the pension they accrued during the time they were in the post.
Buffett believes that not only should CEOs be forced to return retirement savings if they "screw up", but directors should also be made to hand back five years worth of their lucrative salaries if they lead a bank to its demise.
“All kinds of trouble [was] caused by the banks. But bank executives…they all continue to live fine. They may have lost their job, but they got their pensions,” Buffett told CNBC's Squawk Box. “There have got to be consequences to the people who make the decisions. Penalizing the shareholders later on by billions of dollars worth of fines…that doesn’t deter the bad action."
The man worth $111 billion believes CEOs should "go back to living like a person that works on the production line of Ford or something like that. They don’t deserve anything special."
Opulent banker lifestyles
Buffett's opinion may be influenced by the likes of former SVB CEO Greg Becker, who just days after presiding over the second biggest bank failure in U.S. history, jetted off to his $3.1 million holiday home in Hawaii.
Becker had been partially blamed—by staff at least—for the collapse of the San Francisco-based lender, after he candidly revealed the state of the business' finances to investors in a move dubbed "idiotic" by employees.
Buffett believes his ideal system wouldn't get rid of moral hazard "because it penalizes different people who make the decision", he added. "And I wanna penalize people who make the decision and have it very clear to them."
Will bank CEOs be punished?
Buffett added he believes it's unlikely his idea would ever come into fruition, which would be good news for his friends who he believes will not greet his proposal with "great enthusiasm."
While such a move could hit his popularity in the finance world, Buffett believes such action is necessary to deter similar behavior in the future.
"I’ve been on the board of banks, and the answer is to have board of directors feel like, 'God, if this guy screws things up, I’ve gotta give back all this money that I’ve gotten, you know, $300,000 a year or whatever it may be in pre-stock,'" the 92-year-old Buffett explained. "Believe me, that changes behavior of the people that cause the problem."
Buffett admitted bankers involved in the recent turmoil had not made the same mistakes as those who prompted the financial crisis of 2008—adding the "reprehensible" individuals who presided over the chaos nearly 15 years ago have got off relatively easily.
“I don’t know anybody that went back to flipping burgers at McDonald’s or something, after they screwed up the system in a big way in 2008 and ’09,” he said. "There’s no penalty attached to bad behavior. And it does really, really affect the system when people lose confidence in banks.
"I just think the system isn’t set up quite right in terms of connecting punishment to culprits on something that’s ... incredibly important that your banking system run well in a country."
Despite selling off a raft of shares in lenders, Berkshire Hathaway has kept hold of Bank of America stock, with Buffett heaping praise on its CEO Brian Moynihan as someone he likes "enormously".
Such individuals will have to play a key part in restoring the public's confidence in the sector, which Buffett—who is in Japan this week—believes is paramount: "It’s important the banks retain the confidence of the public and they can lose it in seconds."
