Buffett backs out of bank insurance
A small subsidiary of Berkshire Hathaway has decided that enough is enough in the bank insurance business. Kansas Bankers Surety Co. announced that it would no longer sell insurance on bank deposits over the FDIC limit of $100,000. In the days before the financial collapse, the insurance was extremely profitable as bank failures were few and far between. With a total of 11 fallen banks this year, insurers are worried that their clients may be in need of more protection from bank failure. Insuring deposits is no longer a profitable business considering the risks tied to the recent failures.
One part of the announcement that surprised both clients and investors is that the company will also terminate existing policies. It is typical that when an insurance company ends a policy offering they no longer offer it to new clients but keep the original number of customers. Kansas Bankers Surety has no such plan, instead it will tell its clients to find another source for insurance or spread investments among many banks for full FDIC protection.
Input from other insurers and businessmen all connected the dots to one source. It simply isn’t safe and will unlikely be profitable to insure deposits at smaller banks that are more likely to fail. Typically large depositors pay the fees to these companies to insure their deposits, but the financial stability of these investors is out of the hands of the individual and instead in better management of the bank. Banks on the short list of failure are mostly smaller banks that have been devastated by localized real estate holdings.
