Warren Buffett says bank CEOs and directors should 'suffer'

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Berkshire Hathaway's owner Warren Buffet asserted that when US bank directors face difficulties, they "should suffer," and that he was leery of most banking stocks due to "messed-up incentives."

The remarks by Buffett, 92, dubbed the "Oracle of Omaha" by investors, came a week after the failure of First Republic Bank, the largest bank failure in the United States since the 2008 financial crisis.

Buffett criticized politicians, regulators, and the press for their handling of the recent collapses of Silicon Valley Bank, Signature Bank, and First Republic Bank, saying their "very poor" message had unduly panicked customers.

He expressed that the CEO and directors should be the ones to suffer when a bank they run falls into a hole. According to him, if not, 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 said he was still wary of bank equities and had lately cut his exposure to the industry - with the exception of Bank of America, which he loved.

"The incentives in bank regulation are so messed up, and so many people have an interest in having them messed up... it's totally crazy" he remarked, adding that people who do the wrong thing must face consequences.

“If you look at First Republic, you can see that they were offering non-government guaranteed mortgages at fixed rates for jumbo amounts – that’s a crazy proposition to the advantage of the bank. It was in plain sight and we all ignored it until it blew up.”

Charlie Munger, the Berkshire Hathaway vice-chairman and Buffett's right-hand man, expressed that “I don’t think having a bunch of bankers, all of whom are trying to get rich, leads to good things. I think bankers should be more like an engineer, avoiding trouble rather than trying to get rich … It’s a contradiction in values.”

Supervisors failed to recognize dangers

A recent analysis of SVB's failure by the US Federal Reserve attributed deregulatory policies implemented under Donald Trump's administration for the lender's demise. Many of the checks and regulations on lending by smaller banks were eased by legislation in 2018.

Supervisors failed to recognize the magnitude of dangers, according to the first official assessment on the crisis, but they were also taking "a less assertive supervisory approach" as a result of legislative changes, it said.

Buffett also criticized the government's communication with the public about the safety of their money, saying it was confusing. His own father lost his job due to a bank run in 1931. 

He said he was preparing for a risk of a worsened banking crisis but added that if the system gets stalled temporarily, "we want to be there."

Read more: US banking crisis to worsen if structural problem not addressed

In March, America's 16th-largest bank saw 60% of its shares plunge, making it the second-largest bank failure in US history following the great market collapse of 2008, prompting regulators to seize its assets and halt trade on its stocks in Nasdaq.

Last week, JPMorgan Chase CEO and billionaire Jamie Dimon told analysts that the present banking crisis was over. The announcement was made moments after JPMorgan Chase acquired First Republic Bank.