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Warren Buffett denies that Berkshire Hathaway 'too big to fail'

May 03, 2015 14:51 IST

The focus on Berkshire's size has grown over the years as it has amassed more than 80 businesses

Warren Buffett on Saturday rejected the idea that Berkshire Hathaway Inc , a sprawling conglomerate he has built over 50 years, has grown so big that it is now too big to fail and requires tighter regulatory oversight.

"There is no reason, in logic or in terms of what we've heard, to think that Berkshire would be designated as a SIFI," Buffett said at Berkshire's annual meeting, using the acronym for systemically important financial institution. "I do not think Berkshire comes within miles of qualifying as a SIFI."

The SIFI designation forces companies to submit to Federal Reserve oversight, and could make them adopt tighter capital and liquidity requirements that could impede growth and profitability.

Buffett and his second-in-command, Charlie Munger, were fielding questions at the annual shareholder meeting. Buffett was responding to a question about how the SIFI designation would affect Berkshire.

The focus on Berkshire's size has grown over the years as Berkshire has amassed more than 80 businesses, including capital-intensive businesses such as the Burlington Northern railroad, and units that insure against major catastrophes.

Those catastrophes can be costly, and both the September 11 attacks on the World Trade Center and Pentagon as well as Hurricane Katrina in 2005 cost Berkshire billions of dollars.

Buffett, however, has pledged to maintain a $20 billion cash cushion at Berkshire - it has $63.7 billion now - to protect against such problems.

Moreover, Berkshire gained a reputation during the global financial crisis as a source of liquidity, investing in companies as diverse as Goldman Sachs Group Inc , General Electric Co and motorcycle maker Harley-Davidson Inc.

Other companies with big insurance operations that have the SIFI moniker include American International Group Inc , MetLife Inc and Prudential Financial Inc . MetLife is suing to reverse that designation.

Source: REUTERS
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