Crisis in the US financial institutions: Warren Buffett rushes to the aid of banks

– Warren Buffett rushes to the rescue of banks

The investor legend is in contact with the White House as was the case during the financial crisis. At that time, Buffett had the brilliant idea and subsequently made a good return.

Published today at 3:10 am

When Warren Buffett gets into a stock, it generally advances substantially.
Image: Nati Harnik/AP Photo/Keystone

Warren Buffett appears to be offering his help again. As the news agency “Bloomberg” reports, the investor legend is said to have been in contact with high-ranking representatives of the US government under President Joe Biden in the past few days.

It is still unclear what role Buffett will play in containing the US regional banking crisis. Buffett’s holding company Berkshire Hathaway, the White House and the US Treasury Department did not comment.

Significant role in financial crisis

Buffett played a crucial role behind the scenes during the 2008 financial crisis. According to then US Treasury Secretary Henry Paulson, Buffett came up with the idea of forcing all major US banks to accept government money.

In a situation where the institutions no longer trusted each other due to supposedly toxic assets, this extraordinary step restored trust in the system as a whole.

In addition, Buffett also gave individual banks direct financial support with his Berkshire Hathaway. After Lehmen Brothers collapse In 2008, he backed investment bank Goldman Sachs with $5 billion. In 2011, Buffett helped ailing giant Bank of America inject capital after its stock plummeted on losses on junk mortgages.

Both financial institutions subsequently recovered, delivered strong results in recent years and contributed to the success of the Berkshire Hathaway stock portfolios and thus increased Buffett’s wealth. When Buffett gets into a stock, its price usually rises significantly because many investors do the same as the “Oracle of Omaha.” That’s what Buffett said last year the best-performing stock on the US stock exchange.

Plight of the regional banks

Now US banks are in trouble again, only this time it’s the smaller ones. After the failure of Silicon Valley Bank and Signature Bank in the past few days, the shares of US regional banks in particular have lost a lot of value.

The US Federal Reserve introduced the money houses last Sunday emergency liquidity available, the US Treasury Department set up a billion-dollar fund for security and the state-run US deposit insurance fund, which is financed by all banks, guaranteed all customer deposits from the bankrupt banks at Biden’s instigation.

The misery of the regional banks continued. Next, the First Republic Bank is in danger of falling. Their shares have lost around 80% of their value in the past few days. The US big banks have already been in coordination with the authorities injected $30 billion in deposits into the bank, to stabilize them.

Financial institutions ask for guarantees

But the crisis is not over yet. On Saturday, the Association of Mid-Size US Banks (MBCA) sent an appeal for help to the authorities. The MBCA fears a mass withdrawal of customer funds and, according to “Bloomberg”, is asking the deposit insurance for a guarantee for all funds for the next two years.

While in Switzerland the falling Credit Suisse is there likely to be taken over by competitor UBS, even in America – where the disaster took its course – everything is far from clear. Maybe Warren Buffett will come up with another brilliant idea.

Valentine Ade is the US correspondent for «Finanz und Wirtschaft». From New York, he reports on companies, markets and politics in the world’s largest economy. Before FuW, the economics graduate worked in the business department of the “Basler Zeitung” and as a local journalist at the “Badische Zeitung” in Rheinfelden.More info @valle85

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