Billionaire investor Warren Buffett has called for executives who led the US banking system into crisis to face “punishment”.
Speaking at Berkshire Hathaway’s annual shareholder meeting, the 92-year-old investor criticized politicians, regulators, and the press for their poor messaging in handling the recent failures of Silicon Valley Bank, Signature Bank, and First Republic Bank. He added that US bank directors “should suffer” when they run into trouble, warning that the messed-up incentives in bank regulation should have consequences for those who do the wrong thing.
Buffett’s comments come as the American economy grapples with the worst series of bank failures since the 2008 financial crisis. Last week saw the collapse of First Republic Bank, the biggest US bank to fail since the financial crash. Buffett said that bank executives should suffer consequences for their actions, as it “teaches the lesson that if you run a bank and screw it up, you’re still a rich guy, the world still goes on … That is not a good lesson to teach the people who are holding the behavior of the economy in their hands.”
Buffett, who is known as the “Oracle of Omaha,” revealed that he is wary of most banking stocks because of the “messed-up incentives” in bank regulation. He also expressed concern over the recent reduction of checks and controls on lending by smaller banks, blaming deregulatory changes made during Donald Trump’s presidency. The review by the US Federal Reserve of Silicon Valley Bank’s failure found that supervisors did not identify the seriousness of risks but were also taking “a less assertive supervisory approach” because of legislative changes.
Buffett’s comments come from his own personal experience. His father lost his job in 1931 due to a bank run. As a result, he said he is preparing for the small risk of worse developments in the banking crisis, adding: “We want to be there if the banking system temporarily even gets stalled. It shouldn’t. I don’t think it will. But it could.”
Buffett’s right-hand man, Charlie Munger, also echoed his concerns. He told the meeting that having a bunch of bankers all trying to get rich does not lead to good things. Instead, Munger said bankers should be more like engineers, avoiding trouble rather than trying to get rich. “It’s a contradiction in values,” he said.
In conclusion, Buffett’s comments highlight the need for a change in the banking system. The current system has “messed-up incentives” that allow bankers to get rich even when they run their banks into the ground. Buffett believes that executives should suffer the consequences of their actions and that the banking industry needs to be more like engineers, avoiding trouble rather than trying to get rich. With the American economy facing its worst series of bank failures since the 2008 financial crisis, the need for a change in the system is more apparent than ever.
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