An unusually negative story about Berkshire Hathaway, the giant firm owned by the world's second richest man Warren Buffett, has emerged. According to reports from the Financial Times The Bank of England wrote to US authorities to ask why Berkshire was absent from a provisional list of "systemically import" (Too Big To Fail) financial institutions (SIFIs).
Worryingly, the US Treasury declined to comment and ignored the request. Such a stance is troubling and raises concerns about the level of connectedness between the tycoon, his businesses and U.S. regulators.
Berkshire operates a large number of very large insurance businesses (Geico, General Re, Applied underwriters and 6 more). The inquiry from the Bank of England comes are fellow insurer MetLife is suing the US government to try to escape being deemed systemically important by Washington.
Such a designation means the firm must 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 British regulators are upset over the reluctance to subject Warren Buffett’s Berkshire Hathaway to tougher scrutiny as part of a worldwide push to make the global financial system safer.
Regulators have thus far focused on primary insurance companies — including AIG of the US, Germany’s Allianz and UK-based Prudential — and designated them globally “systemically important”.
The UK bank, along with primary insurers, are upset over the failure to designate reinsurers as systemically important. The objecting parties argue reinsurers are more important to the financial system and carry higher risk of deep losses in the event of crises.
There are allegations of tampering by the reinsurers as the 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”.
It gets more interesting...
The global list is also mirrored by a national list here in the United States. In this list Berkshire crosses thresholds that would make it designated as it has more than $50bn in assets and more than $3.5bn of derivatives liabilities.
Despite being on the provisional American list the final decision on the global list is made by a council of US regulators who have not yet opted to subject Mr Buffett’s company to increased oversight for some reason, despite the clear evidence of its systemic importance.
For these reasons the international regulators are none too pleased at this 'one rule for you, another rule for us' plan and are making their displeasure known. It's becoming clear that Mr Buffett's financial heft combined with his unparalleled political connections give him and his companies special treatment.