May 8, 2023 - Economy

Buffett: Banks need some old-fashioned values

Photo illustration of bank columns surrounding Warren Buffet in front of a pattern of one hundred dollar bills

Photo illustration: Annelise Capossela/Axios. Photo: Tasos Katopodis/FilmMagic

Warren Buffett revealed why he hasn’t moved to buttress a U.S. banking system suffering a confidence crisis — more accountability is needed from executives.

Why it matters: The irrepressibly pro-America billionaire could take action. He has an established history with retail banking plus nearly $130 billion worth collectively in his holding company of dry powder to invest in banks, or even buy a few outright.

Driving the news: Buffett and his business partner Charlie Munger spoke frankly — and in less than flattering terms — about what ails the banking sector, and hinted at why they were cautious about investing there.

  • Buffett said allowing SVB to fail would have been “catastrophic” but he and Munger were sharply critical of bank executives, and officials trying to manage the crisis.
  • Both men also expressed concerns about the outlook for commercial real estate, a linchpin of small and medium-sized banking portfolios. Munger specifically singled out the “hollowing out of downtowns in the U.S. and elsewhere in the world [that] will be quite significant and quite unpleasant.”

What they’re saying: Buffett keyed in on First Republic Bank’s bespoke — and generous — jumbo mortgages for high-end clients, calling them a “crazy proposition. You don’t give options like that. That’s what First Republic was doing and it was in plain sight and everyone ignored it until it blew up.”

  • He also called for executives who take on excessive risk to be held accountable if the bank has to be rescued. “You have to have … punishment for people that do the wrong things,” the billionaire added.

The bottom line: “Banking can have all kinds of new inventions but it needs to have old values…depositors should not lose money [but] stockholders and debt holders should lose money – too bad,” Buffett added.

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