Buffett: Berkshire Does Not Pose A Systemic Risk

Warren Buffett, the chairman and CEO of Berkshire Hathaway said his company does not pose any threat to the financial system during an interview with CNBC on Monday, May 4.

During the interview, Buffett said Berkshire Hathaway should not be designated as a systemically important financial institution (SIFI) because of its size. He pointed out that there are many other large companies such as Apple, Exxon Mobil, and Wal-Mart Stores.

“There is no reason, in logic or in terms of what we’ve heard, to think that Berkshire would be designated as SIFI. I do not think Berkshire comes within miles of qualifying as SIFI,” said the Oracle of Omaha.

Buffett says Berkshire will always have loads of cash

According to Buffett, Berkshire Hathaway is a large company, but the main question is; does it pose a risk to the financial system? He explained that the conglomerate generated 20% of its revenue from its insurance business. Buffett pointed out that Berkshire’s insurance business does not write life insurance where people can demand their cash.

“There is no way in Berkshire that we can have large demands for cash. We will always have loads of cash just like we had in 2008. We do not pose any, remotely any threat to the system. Hundreds of companies may be likely in that category,” said Buffett.

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He vowed that Berkshire Hathaway will maintain a cash cushion of $20 billion. At present, the conglomerate has $63.7 billion to protect itself from liquidity problems. During the global financial crisis, Berkshire Hathaway gained a reputation of as the source of liquidity.

Bank of England asked if Berkshire too big to fail

Last month, the Bank of England asked whether Berkshire Hathaway is “too big to fail.” The British central bank also questioned the United States Treasury’s lack of enthusiasm to subject Warren’s conglomerate into a stricter scrutiny.

The Financial Times recently reported that the Bank of England sent a letter to the U.S. Treasury asking why Berkshire Hathaway’s reinsurance operations were not included in the list of” too big to fail” institutions. The conglomerate operates Berkshire Hathaway Reinsurance and General Re.

Last year, $41.3 billion of the approximately $195 billion revenue of Berkshire Hathaway came from insurance premium earned. Buffett wrote in his latest letter to investors that the insurance industry has been the engine that has propelled the expansion of his conglomerate since 1967.

Berkshire Hathaway meets the threshold to be designated as “too big to fail” under the U.S. process because it has more than $50 billion in assets and over $3.5 billion of derivative liabilities.

See all links to the Buffett CNBC interview below