- Weak regional banks should be allowed to fail, according to Kevin O'Leary.
- The "Shark Tank" investor blasted small banks run by "idiot" managers.
Weak regional banks should be allowed to fail, and the regional bank system is a relic that's essentially been made obsolete by the advent of digital services, according to "Shark Tank" star Kevin O'Leary.
"Let the ones run by idiots go to zero," O'Leary said in an interview with Bloomberg TV on Monday. "That's the great thing about the markets, it finds the bad managers, culls them, and eliminates them. We have to let that happen here. So many idiot managers in banking."
The famed investor pointed to the slew of banking failures spanning the past few months, with the most recent being the collapse of First Republic Bank in early May.
Those failures are the result of poor management and "upside-down" balance sheets at regional banks, O'Leary said, predicting that around 15% of existing regional banks would soon go under for similar reasons.
The regional banking system is also practically obsolete with the rise of online banking, he added, estimating that 97-98% of all banking is done online. Previously, O'Leary predicted that the fall of Silicon Valley Bank in early March was the beginning of the end for regionals, and that small banks would consolidate into a handful of large firms within the next three or four years.
"The reasons for regional banks that were important 60 or a hundred years ago due to the differentiation of the economy in different parts of the country makes no sense anymore because we have digital banking," O'Leary said.
Regulators are unlikely to guarantee deposits over the FDIC's $250,000 limit, or the stocks of failed banks, O'Leary said. For his part, he's already told his companies to pull out their cash of smaller lenders.
"I've told this to all my portfolio companies, give me a reason that you would keep any of the cash I invested in your company in a regional bank," he said. "Why do I have to put any cash at risk? Get it out of there, move it into one of the major money center banks. Otherwise, we won't lend you any more, or buy any more of your equity."
The regional bank panic has been coming in waves, with fresh fears around PacWest and Western Alliance hitting markets last week after First Republic was taken over and sold to JPMorgan. Shares of PacWest have plummeted 42% over the past month, while shares of Western Alliance have fallen 15%