In my presentations titled “Eight Risks Awaiting Us” that I have delivered throughout April, I stated that bank collapses could continue in the United States and that EU and US banking have quite different approaches from each other, but in essence, both have made plenty of mistakes so far.
American business magnate and investor Warren Buffett predicts more bank collapses, “Banks go bust. But depositors aren’t going to be hurt.”
“We’re not over with bank failures, but depositors haven’t had a crisis,” the chairman and CEO of Berkshire Hathaway said in a recent interview, warning that troubled bank stocks are not value investments and that stockholders will get hurt even if the government takes action to protect depositors. “They’re not going to save the stockholders,” he said regarding the US’ current banking crisis.
He also stated, “The public has the impression the FDIC is the US government. But the cost of the FDIC is borne by the banks. So, banks have never cost the federal government a dime.” As a matter of fact, deposit insurance works more or less the same all around the world. Moreover, the deposit insurance can generate funds from the sale or operation of seized assets.
I think, through this analysis, Buffett tried to prevent the depositors from further panicking due to the fact that their deposits are under the fund protection policy, but on the other hand, he implied that those who bought the stocks of troubled banks, thinking that they are “bargains”, actually made a big mistake. In other words, he said that while depositors’ savings are protected, investors will be wiped out. Of course, these thoughts he shared in the midst of a busy economic agenda will be forgotten after a while, but I think they are worthy of being noted since they express the problems in the US banking and financial system.
While institutions in the United States provide 19% of their financing from banks, this rate exceeds 80% in the EU. Therefore, the damage that bank failures will cause to the system would be very small compared to a catastrophe that would occur in the US bond market. Still, I feel the need to warn that the disaster might erupt right in this market.