Denver Bankers, regulators and government officials have been dealing with a central question for days: How can trust in the US banking system be restored after the Silicon Valley Bank (SVB) went bankrupt? Star investor Warren Buffett is apparently also involved in the discussion. The head of the Berkshire Hathaway conglomerate is in contact with high-ranking officials in the government of US President Joe Biden, the Bloomberg news agency reported on Saturday. Berkshire officials could not be reached for comment.
During the 2008 financial crisis, the star investor had already become active. When Buffett invests in a company, it’s often seen as a seal of approval by other investors. His holdings in Goldman Sachs and Bank of America brought much-needed stability to the US banking world at the time. They’ve also been hugely lucrative for Berkshire’s shareholders.
Exactly how Buffett might get involved this time is not yet known. Berkshire has an unusually high cash reserve of around $130 billion, and Buffett has been looking for acquisitions and investments for years. The 92-year-old can evaluate potential deals “instantly — sometimes in minutes,” said Lawrence Cunningham, who has written several books on Buffett and has followed the investor’s strategy for decades.
The Berkshire boss tends to turn down many deals. But he’s also a big investor in financial stocks. Bank of America is the second-largest position in his $300-plus billion portfolio.
He is also involved in American Express, Citigroup and US Bankorp, among others. Buffett, whose group also includes a good 80 small and medium-sized companies, has maintained close relationships with banks large and small for many years. The price slide at US banks also led to paper losses in the billions at Berkshire last week.
Concern about American banks
Meanwhile, the debate about the stability of the US financial system is entering a new round. The US Federal Reserve launched a new loan program for banks last Sunday so that they can obtain liquidity quickly and easily. Many banks suffer from similar problems as the SVB: they are sitting on unrealized losses in their bond portfolios, although the problems at the SVB were particularly pronounced.
Independent capital markets adviser Ed Yardeni sees the Fed program as an implicit guarantee of all deposits. By way of an exception, the US deposit insurance guaranteed all of SVB’s and Signature’s bank balances. However, it is still explicitly the case that deposits in the USA are only insured up to USD 250,000 per customer and bank.
This has further unsettled bank customers in the past week. They have transferred billions of dollars in deposits to big banks, which are more tightly regulated and better able to absorb turbulence. According to Bloomberg, Bank of America alone received more than $15 billion in new deposits.
Shares in regional banks also continued to come under heavy pressure last week. The focus is particularly on the First Republic Bank from San Francisco, whose papers have lost a good 80 percent of their value in the past ten days. The bank is looking for a buyer and considering other strategic options, it said at the end of the week.
Small banks call for support
Meanwhile, the Association of Medium-sized US Banks (MBCA) is asking the supervisory authorities for help so that a customer run on the financial institutions can be prevented. The institutes asked the US deposit insurance fund FDIC for insurance for all customer deposits for the next two years, as Bloomberg also reported on Saturday.
That would immediately prevent the withdrawal of customer funds from the smaller banks. In addition, insurance would stabilize the banking sector and significantly reduce the likelihood of further bank failures.
Confidence in the banking system as a whole must be restored immediately. Should another bank collapse, this will lead to further panic withdrawals from other institutions. According to the information, about 110 banks with a maximum balance sheet total of 100 billion dollars belong to the MBAC.
With agency material.
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