Warren Buffett and his conglomerate Berkshire Hathaway Inc. have made oodles of cash, even in recent tough economic times. But does its size mean that it deserves tougher governmental regulation? One body of top financial regulators believes that it might.
The Financial Stability Oversight Council (FSOC) has begun examining whether Berkshire Hathaway poses risk to the financial system, according to The Wall Street Journal. The FSOC could designate Berkshire Hathaway as a systemically important financial institution (SIFI), which would subject it to tougher governmental oversight by the Federal Reserve.
The WSJ says that Berkshire Hathaway certainly meets some criteria of being considered a SIFI. The FSOC says that for a company to be considered a SIFI, it must have $50 billion in total consolidated assets and meet at least one of five other criteria, including exposure to derivative liabilities and credit-default swaps. The company would also have to receive the label of a nonbank financial company as defined by Dodd-Frank, in which the company must have 85 percent of more of its consolidated assets in or gross revenues from financial activities.
While the Federal Reserve does not provide explicit detail on what additional oversight a SIFI designation entails, those familiar with the process say that it is likely to include regulation of the firm’s capital levels, which then lowers potential returns to shareholders through dividends and kickbacks.
This would put the conglomerate alongside other SIFI-designated companies such as American International Group Inc. (AIG) and Prudential Financial Inc. The FSOC is also in the early stages of determining whether asset management companies such as BlackRock Inc. and Fidelity Investments should be considered SIFI. MetLife Inc., which is in the final stages of an FSOC review, is fighting the designation.
In recent times, Berkshire Hathaway emerged relatively unscathed from the regulatory scandal surrounding other financial institutions. In March 2012, the company won dismissal of a shareholder lawsuit that alleged insider trading. The IRS also sued Berkshire-owned NetJets Inc. for unpaid taxes in March 2012, but the case was settled quietly.
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