Has he found his elephant?

[Phaceliacapital]

Yes that is true..

[Guest Schwab711]

I keep thinking about that last banking crisis.  What if each bank never paid dividends (nor bought back shares) and instead retained those earnings to purchase more diverse income streams (not more banks, but completely separate industries)?  Would they have needed bailout money? 

 

I wonder how much money was poured into dividends and buybacks at BAC over the prior 20 years leading up to the crisis.

 

Anyways, different topic from this thread. 

 

Berkshire has something great going on from the nearly indestructible nature of it -- those independent businesses reinforce the safety of each other.  Businesses that return capital to shareholders can never reach their maximum potential level of safety -- by definition of having returned the excess capital.  IMO.

 

I wish they could!! I'd do all my banking at the Bank of Berkshire.

 

https://en.wikipedia.org/wiki/Bank_Holding_Company_Act

You had to be a bank holding company to acquire an out-of-state bank. Once you were a bank holding company, you are a bank and can only own banks (other than companies you came to own through bad loans and are attempting to sell; you can also start your own non-bank financial companies). FDIC still gets really touchy about what you invest in with deposits they insure. 40 years later, the industry is still scared of the one-off Herstatt risk (you could argue that more money has been spent preventing this risk then was ever lost from it - banks don't fail in hours very often). Most of these provisions were repealed in 94 or 99, but by then Basel requirements were already around (https://en.wikipedia.org/wiki/Basel_I) and Basel II was already being considered. RWA have basically put the kibosh on this. Berkshire is as close as you can get to this marriage outside the former M&I (Metavante and Wealth Management were the largest sources of income and the banking-side wasted this advantage with over expansion). Banks generally aren't satisfied with high returns if rev/profit plateau.

 

Rb is right that this has occurred at times and it generally results in shockingly low returns because folks don't use their financing advantage properly. Modern banking in the US as we know it (pre-Dodd-Frank) is extremely young. We were in the stone-age for a long time post-Depression.