Senior US officials have been in talks with billionaire investor Warren Buffet on the unfolding banking crisis and possible ways out of it, Bloomberg reported on Sunday, citing sources within President Joe Biden’s administration.
Known as the 'Oracle of Omaha', Buffett is one of the globe’s most successful investors with a fortune worth roughly $101.6 billion. He is head of the Berkshire Hathaway conglomerate, which owns dozens of successful companies, including insurer Geico, battery maker Duracell and restaurant chain Dairy Queen.
The alleged talks between the billionaire and Washington officials took place over the past week and reportedly focused on possible investment by Buffet in the banking sector and his advice regarding the volatile situation in the industry.
Officials turned to the tycoon following the collapse of three US regional lenders earlier this month – Silvergate, Silicon Valley Bank (SVB) and Signature – following mass deposit outflows. The bank runs were triggered by investor worries over the financial health of the institutions following recent interest rate hikes.
The fallout has shaken the entire US banking industry, with dozens of other lenders seeing their stocks plunge despite extraordinary measures announced by regulators last week to assuage customers. Nearly 200 US banks currently face risks similar to those that led to the collapses, according to a study posted this week to the Social Science Research Network.
Buffett has aided banks before. He invested $5 billion in Goldman Sachs following the financial crisis of 2008 and the collapse of Lehman Brothers Holdings. Bank of America secured a capital injection from the billionaire in 2011 when its stock fell due to losses from subprime mortgages.
Anonymous sources told Bloomberg that the calls between Buffett and President Biden's administration have centered around him possibly investing in the regional banking sector.
But they add he is also offering advice to officials about how to weather the storm as officials fear the failures will create a domino effect through the banking system.
It comes after it emerged nearly 200 banks would fail if half of their depositors suddenly withdrew all of their funds following the sudden collapse of Silicon Valley Bank and First Signature bank
Midsize banks plead for unlimited FDIC backstop for two years
A coalition of midsize U.S. banks is calling on the government to insure all deposits for the next two years, in the wake of Silicon Valley Bank's emergency rescue that insured all of the firm's deposits regardless of size
Driving the news: The Mid-Size Bank Coalition of America sent a letter to regulators arguing that a temporary suspension of the FDIC's deposit insurance limit is necessary to ensure that smaller banks can navigate the current banking crisis, Bloomberg reported.
- "Doing so will immediately halt the exodus of deposits from smaller banks, stabilize the banking sector and greatly reduce chances of more bank failures," the letter said, according to Bloomberg.
- Tesla CEO Elon Musk also endorsed the idea in a Twitter post early Saturday, saying the move was needed to "stop bank runs."
Why it matters: After the sudden collapse of Silicon Valley Bank and New York's Signature Bank, the spotlight is on banks that may also be vulnerable to a sudden outflow of deposits.
- The FDIC currently insures deposits up to $250,000, though the agency's decision to protect SVP and Signature depositors suggests a broader willingness to back customer funds.
- Separately, Bloomberg also reported that billionaire investor Warren Buffett was in contact with the White House, heightening speculation that he could provide financial support to regional banks.
The recipients: The MBCA sent its letter to Treasury Secretary Janet Yellen, the FDIC, the Comptroller of the Currency and the Fed, according to Bloomberg.
What we're watching: Whether Washington answers the growing clamor to broaden FDIC deposit protection. California Democratic Rep. Ro Khanna is preparing to introduce legislation that removes the agency's coverage cap, Dealbook reported on Saturday.
Footnote:
FDIC : The Federal Deposit Insurance Corporation is an independent agency created by the Congress to maintain stability and public confidence in the nation’s financial system.
MBCA : Model Business Corporation Act is is a Model Act promulgated and periodically amended by the Corporate Laws Committee of the Business Law Section of the American Bar Association (Committee).
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