2

Buffett puts up banking caution sign

Warren Buffett, chairman and CEO of U.S. holding company Berkshire Hathaway.

TEXT OF STORY

KAI RYSSDAL: You know who else could pull it off? Warren Buffett. The guy's worth $60 billions. Of course, he won't. In part, because he's not really a bank guy. His company, Berkshire Hathaway, has huge insurance holdings. For those who look to Buffett to figure out the way the economic winds are blowing, we offer this news. One of those insurance subsidiaries says it's going to stop covering bank deposits over $100,000. Marketplace's Nancy Marshall Genzer explains.


Nancy Marshall Genzer: The FDIC doesn't insure bank deposits over $100,000. So, banks have long lured in wealthy customers with excess deposit insurance. If your bank fails, you don't lose your money. The banks bought the insurance from companies like Kansas Bankers Surety, or KBS, a subsidiary of Buffett's Berkshire Hathaway.

Banking consultant Bert Ely says KBS and Buffett may have gotten spooked by rising bank failures.

BERT ELY: It's a fine business when you don't have many failures. But when failures go up, then you do have issues.

As in, you have to pay up. Neither Buffett nor KBS would grant us an interview. But The Wall Street Journal says Buffett himself ordered KBS to stop selling excess deposit insurance. KBS's official explanation? It can't get reinsurance. That's insurance for insurers. But Ely says that's kinda weird.

ELY: Berkshire Hathaway owns a major reinsurance company.

The big question now is, Will other insurers follow Buffett's lead?

Economist James Barth at the Milken Institute says some companies are re-evaluating. But others see opportunity.

JAMES BARTH: New insurance companies enter the business thinking now premiums will have to go up.

Rodney Sargent will boldly go where Buffett will go no more. Sargent is CEO of BancInsure.

Rodney Sargent: If a competitor leaves the marketplace, I'm hopeful that I can pick up good customers as a result of that. And I think that's a win-win.

KBS has a large network of customers nationwide.

In Washington, I'm Nancy Marshall Genzer for Marketplace.

About the author

Nancy Marshall-Genzer is a senior reporter for Marketplace based in Washington, D.C. covering daily news.
Log in to post2 Comments

Oops. Make that Warren BuffetT.

Hold on. Having one Berkshire Hathaway subsidiary reinsure another sounds like bad business practice to me. Doesn't sound at all like Warren Buffet. Question 1; Is it, in fact, considered sound practice for one subsidiary of a large holding entity to reinsure another insurance subsidiary? Question 2: Does GenRe now or has it ever reinsured KBS or any other insurance arm of Berkshire Hathaway?

With Generous Support From...