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Sep.10

9:07 AM ET

Wednesday, 10 Sep 2008

Warren Buffett Appears to Be Worried About Future Bank Failures

Posted By:Alex Crippen

Topics:Credit | Warren Buffett

Sectors:Insurance | Banks

Companies:Berkshire Hathaway Inc.

Buffett's Bank Worries?
A Berkshire Hathaway subsidiary's move to stop insuring bank deposits above federal limits apparently reflects Warren Buffett's worries about future bank failures.

Several reports say that Kansas Bankers Surety in Topeka is getting out of the business of backing deposits above the $100,000 limit guaranteed by the Federal Deposit Insurance Corp. for many bank accounts.

And the Wall Street Journal says this morning that the decision came from Buffett himself. "Two people briefed on the matter said the order was made Monday by Mr. Buffett."

While a KBS executive confirmed to the Journal that the company isn't writing any new policies and will work with banks to eliminate existing policies, he wouldn't "confirm or deny Mr. Buffett's involvement, calling it 'strictly rumor.'"

In its story on the KBS move, the Kansas City Star quotes the president of the Missouri Bankers Association as saying the decision appears to have been made "somewhere up the chain."

And the Oklahoman suggests that when it comes to the glass half-full vs half-empty debate over the credit crisis, Buffett may believe the "glass is cracked."

That newspaper quotes Roger Beverage, president and CEO of the Oklahoma Bankers Association, as saying, "Apparently Mr. Buffett thinks there is a possibility of more bank failures not covered by FDIC. That's a huge blow for any community bank that had those coverages." He calls the KBS decision "stunning."

The Oklahoman notes that many smaller community banks use supplemental insurance for their larger deposits to "assure customers that their deposits are as safe as those in much larger institutions."

There are KBS competitors who are hoping to fill the gap, including BancInsure of Oklahoma City. Its CEO tells the Oklahoman, "We are absolutely confident and stalwart in our desire to stand behind these banks and to be a market for them. We've never had a claim on this excess deposit."

The Journal notes that when another company buys all of a failed banks deposits, the FDIC limits don't come into play. But customers with large balances can lose some of their money when a bank fails and the acquiring company doesn't accept responsibility for deposits above the level guaranteed by Washington.

It says KBS insured some of the deposits at the Columbian Bank and Trust in Topeka and lost money when that bank failed in late August with $46 million in deposits that potentially exceeded government insurance limits.

Current Berkshire stock prices:

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