Critics Say Warren Buffett’s Berkshire Hathaway Is ‘Too Big to Fail’

Warren Buffett and his investing firm, Berkshire Hathaway, were the target of criticism in a letter the Bank of England addressed to the U.S. Treasury, reports MarketWatch. The Bank of England said the reinsurance business owned by Berkshire Hathaway is similar in size to other reinsurance companies around the globe that are considered “too big to fail,” yet has not been classified as such by U.S. regulators.

“Too Big to Fail” Isn’t Just for Banks

The biggest U.S. banks are often criticized for their size, called “too big to fail” — meaning that these banks are so big and intertwined with both American and global economies that their failure could cause irreparable damage to the financial system. It’s this logic that led President Obama to commit hundreds of billions in bailouts to keeping banks and financial institutions afloat following the 2008 financial crisis and recession.

But risky insurance dealings also contributed heavily to the financial crisis, and like big banks, huge insurance companies have a major impact on economies and markets. Because of this, many insurance companies like AIG and Allianz are classified as “systemically important,” which means “a firm must hold more capital to protect against possible losses and subject itself to greater scrutiny by financial watchdogs in the U.S., and abroad in some cases,” reports Market Watch.

According to Bank of England, Warren Buffett and Berkshire Hathaway should fall into the same category, and yet haven’t been classified as such, something the Bank of England said indicated special treatment.

Read: 6 Things Warren Buffett Says You Should Do With Your Money in 2015

Is Berkshire Hathaway a Threat to U.S. Financial Systems?

The situation might seem clear to officials at the Bank of England, but U.S. regulators aren’t so sure. Berkshire Hathaway is something of a special case.The insurance portion of the business accounted for more than a quarter of Berkshire Hathaway’s profits in 2014, reports Fortune. But it’s a huge firm that owns many other non-insurance businesses from railroads to ice cream companies, according to The Wall Street Journal. This makes it tricky to decide if it fits the parameters that would trigger regulation and classify it as systemically important.

Warren Buffett himself said that the diversity and size of Berkshire Hathaway is also a strength to the company that would protect it from failure.

“If the insurance industry should experience a $250 billion loss from some mega-catastrophe — a loss about triple anything it has ever experienced — Berkshire as a whole would likely record a significant profit for the year because of its many streams of earnings,” Buffett said, reports Fortune. “We would also remain awash in cash and be looking for large opportunities in a market that might well have gone into shock. Meanwhile, other major insurers and reinsurers would be far in the red, if not facing insolvency.”

Berkshire Hathaway has been historically stable, and subjecting it to regulation could tamper its earnings and profitability. But even if Berkshire Hathaway is an insurance company that looks completely different from others of its size, at least some critics think that, if Washington regulators make an exception for Buffett and his business, this could weaken global regulations meant to protect financial systems from companies that are too big to fail.

Photo credit: aradaphotography

This article originally appeared on GOBankingRates.com: Critics Say Warren Buffett’s Berkshire Hathaway Is ‘Too Big to Fail’

This article by Elyssa Kirkham first appeared on GoBankingRates.com and was distributed by the Personal Finance Syndication Network.