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Warren Buffett says it would have been ‘catastrophic’ if SVB’s depositors lost their money — and shrugs off debt-ceiling fears

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REUTERS/Rick Wilking

  • Warren Buffett said it would have been “catastrophic” if if SVB’s depositors weren’t made whole.
  • The federal government guaranteed Silicon Valley Bank’s deposits after it failed in March.
  • Failure to do would have sparked bank runs and disrupted the global financial system, Buffett said.

If the US government failed to guarantee Silicon Valley Bank’s depositors after the bank’s sudden failure in March, there would have been devastating fallout, Warren Buffett said.

“It would have been catastrophic, and that’s why they were covered,” the famed investor and Berkshire Hathaway CEO said during his company’s annual shareholder meeting in Omaha, Nebraska on Saturday.

The Federal Deposit Insurance Corp. (FDIC) only insures up to $250,000 of a depositor’s money at any single bank. However, when SVB and Signature Bank collapsed after facing a tidal wave of withdrawals, the federal agency said it would guarantee all of the banks’ deposits.

“That is not how the US is going to behave, any more than they’re going to let the debt ceiling cause the world to go into turmoil,” Buffett said about the idea of the government letting depositors lose money from a bank failure.

The second part of Buffett’s comment signals he’s not worried about the impasse in Congress in regards to raising the government’s debt ceiling, which threatens to leave the US government short of the money it needs to pay its bills by June.

The billionaire investor said he couldn’t imagine a government official going on television to say people’s bank deposits wouldn’t be guaranteed in full. The outcome would be “starting a run on every bank in the country and disrupting the world system,” he said.

Buffett underlined his faith in the security of bank deposits in an interview with CNBC on Wednesday. He offered to bet $1 million that no American depositor would lose a single dollar in a bank failure over the next year.

The failure of SVB and Signature Bank has been followed by an emergency merger between Swiss banks UBS and Credit Suisse, and JPMorgan’s takeover of the troubled First Republic Bank. The prospect of further bank runs has stoked fears that lenders may pull back, causing a credit crunch and tanking the US economy.

Read the original article on Business Insider
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