Buffett demands more sanctions for bank execs

Warren Buffett, a billionaire investor, has said that he is not concerned about the US banking industry but believes that senior executives of failed banks should face tougher consequences. Speaking after the failure of Silicon Valley Bank, he reflected on the public’s frustration following the 2008 financial crisis. He suggested that presidents and CEOs of failed banks should lose their retirement savings, and directors should have to return five years’ worth of their lucrative salaries. He admitted that neither is likely to happen, but he believes that stiffer penalties would help bolster investors’ and bank customers’ confidence in the banking system.

Buffett added that the lack of penalties for bank leaders is one reason why Berkshire Hathaway has sold off most of its bank stocks, including some that the company held for 30 years. He said, “I just think the system isn’t quite right in terms of connecting punishment to culprits on something that is so important.” Stiffer penalties would also help to deter bad behaviour, which does affect the banking system when people lose confidence in banks, he added.

Despite this, Buffett agrees with many banking experts that the problems exposed following the failure of Silicon Valley Bank are nowhere near as bad as the 2008 financial crisis. He also noted that customers of SVB and Signature Bank, a New York bank that failed shortly after SVB, do not need to worry about losing their money as the Federal Deposit Insurance Corporation has guaranteed all deposits for those two banks, even those above the normal $250,000 limit.

Buffett praised Federal Reserve Chair Jerome Powell, saying he does not think he could run the Fed as well as Powell has done. Some critics have slammed the lack of bank oversight and said the Fed raised interest rates so quickly that the Treasuries held by banks lost more value than they expected. Nonetheless, Buffett believes the FDIC’s move is extraordinary and it gives him confidence about the state of the industry. If the costs of bank failures rise, it will be the banks, not US taxpayers, who will have to pay, he added.