– Bank Of England Exposes US Cronyism: Questions Why Buffett’s Berkshire Hathaway Is Not Too Big To Fail (ZeroHedge, April 20, 2015):
If you thought currency-wars were a problem, just wait until crony-wars begin. In a stunning show of disagreement among the omnipotent, The FT reports that a Freedom of Information Act request has confirmed The Bank of England wrote to US authorities seeking clarity about Berkshire’s absence from a provisional list of “systemically import” (Too Big To Fail) financial institutions (SIFIs). The US Treasury declined to comment…
With MetLife suing the US government to try to escape being deemed systemically important by Washington (which means the firm may need to hold more capital to cover unexpected losses and could face a requirement to draw up “living wills” to make them easier to wind down in a crisis), The FT reports on questions over Berkshire Hathaway’s status…
British regulators have challenged their US peers over their apparent reluctance to subject Warren Buffett’s Berkshire Hathaway to tougher scrutiny as part of a worldwide push to make the financial system safer.
The Bank of England has written to the US Treasury asking why Berkshire’s reinsurance operation — among the world’s most powerful — was left off a provisional list of “too big to fail” institutions drawn up by the Financial Stability Board.
Regulators have already deemed nine primary insurance companies — including AIG of the US, Germany’s Allianz and UK-based Prudential — globally “systemically important”, a designation that could lead to higher capital requirements.
The failure to designate reinsurers has angered insurance companies, which argue reinsurers are more important to the financial system.
The Basel-based FSB was expected to make the reinsurance list public last year. But in November, following consultation with national authorities, it postponed the decision “pending further development of the methodology”.
In a sign that disagreement between global regulators may be holding up the process, it has emerged that Bank of England officials wrote to US authorities in October seeking clarity about Berkshire’s absence from a provisional list.
The Bank confirmed the existence of the letter in response to a request under UK Freedom of Information legislation from the trade publication Risk.net. However, it declined to disclose the letter’s contents.
And here’s the punchline…
In the parallel US process, Berkshire crosses thresholds that would allow it to be designated, with more than $50bn in assets and more than $3.5bn of derivatives liabilities.
However, the final decision is made by a council of US regulators which has not yet opted to subject Mr Buffett’s company to increased oversight.
So – the bottom line is that you can be a big to fail as you like but if you have the government in your pocket, you are untouchable… and it seems international regulators are none too pleased at this ‘one rule for you, another rule for us’ plan…
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While no comment was received from Warren Buffett, Berkshire Hathaway, The US Treasury, we suspect the following explains why Buffett’s business is not being treated as a SIFI…
BOE ASKS US WHY BERKSHIRE ABSENT FROM TOO BIG TO FAIL LIST: FT. Here’s why pic.twitter.com/pQS0brillY
— zerohedge (@zerohedge) April 20, 2015