- Lowe’s CEO James Tisch used a colorful quote from Warren Buffett to explain the recent bank turmoil.
- Insurance, energy and hotel bosses praised regulators for averting the catastrophe.
- Tisch warned of further turmoil and urged the Fed to suspend rate hikes for three months.
Lowe’s CEO James Tisch adapted one of Warren Buffett’s favorite maxims to explain what happened during the global financial crisis. Recent bank failuresHe also praised regulators for acting quickly to prevent a bank failure from turning into a financial crisis, but warned that more could happen in the future.
“As Warren Buffett puts it, ‘When the tide goes out, you’ll know who’s been swimming without a bathing suit.’ I spoke on the company’s earnings report.
Buffett, the billionaire investor who runs Berkshire Hathaway, was asked about bank failures in a recent interview and responded with a twist on his famous quote:
Buffett said, “I actually ran into a nudist colony here, in terms of banks doing stuff like that all over the place.”
Silicon Valley Bank and Signature Bank ran into trouble earlier this year as they had an unusually high percentage of uninsured deposits and invested heavily in long-term bonds, which saw prices fall as interest rates rose over the past year or so. rice field.
Their customers worried about the safety of their money and withdrew en masse, forcing the Federal Deposit Insurance Corporation to seize both lenders and insure all their deposits. First Republic also recorded deposit outflows of over $100 billion in the first quarter. Acquisition According to JP Morgan this week.
Tisch said the bank ruckus in early March was a “catastrophe” that sparked the terrifying prospect of an en masse crackdown on US banks. Without the authorities to intervene, a “full-scale banking catastrophe” and a “massive and uncontrollable bankophobia” were at risk of devastating consequences, he continued.
“It would have been like a neutron bomb hitting the economy,” he said. “The best way to stop a bank run, not just wildfires and riots, is to not let it start in the first place.”
But Tisch warned of more trouble ahead. Regulators still haven’t guaranteed bank deposits above his $250,000 FDIC cap, putting smaller lenders at a competitive disadvantage against their ‘too big to fail’ peers. He pointed out that it means
“I wouldn’t be surprised if other flare-ups show up in the coming months,” he said.
The Fed has raised interest rates from near zero to about 5% over the past 14 months after inflation hit a 40-year high last year.
These increases allowed banks to charge more interest on loans. But they also undermined the value of bond portfolios, increased the risk of default on loan books, and pushed down asset prices in key sectors, including commercial real estate.
Rising interest rates also encourage saving over spending, increasing borrowing costs for consumers and businesses more broadly, and increasing the risk of an economic slowdown or recession.
Tisch said there were already signs the economy was slowing. He also stressed the delayed impact of rate hikes and warned of the risk of a credit crunch if lenders hesitate to lend given the risk of worsening finances and further bank crackdowns.
As a result, Tisch asked the Fed to suspend rate hikes for three months. A longer suspension would give the central bank time to assess more economic data and properly assess the threat posed by inflation.