Warren Buffett says fears of bank runs and a US debt default are dangerous - and people need to be told their deposits are safe

• Warren Buffett says Americans' worries about bank deposits and the debt ceiling are dangerous.
• It would have been "catastrophic" if the government didn't make SVB's depositors whole, he said.

Warren Buffett cautioned that people's fears about the safety of their bank deposits and the possibility of a debt default are hugely dangerous.

If the US government failed to guarantee Silicon Valley Bank's depositors after the bank's sudden failure in March, there would have been devastating fallout, the famed investor and Berkshire Hathaway CEO said during his company's annual shareholder meeting in Omaha, Nebraska on Saturday.

"It would have been catastrophic, and that's why they were covered," Buffett said.

The Federal Deposit Insurance Corp. (FDIC) only insures up to $250,000 of a depositor's money at any single bank. However, when SVB and Signature Bank collapsed after facing a tidal wave of withdrawals, the federal agency said it would guarantee all of the banks' deposits.

"That is not how the US is going to behave, any more than they're going to let the debt ceiling cause the world to go into turmoil," Buffett said about the idea of the government letting depositors lose money from a bank failure.

The second part of Buffett's comment signals he's not worried about the impasse in Congress in regards to raising the government's debt ceiling, which threatens to leave the US government short of the money it needs to pay its bills by June.

The billionaire investor said he couldn't imagine a government official going on television to say people's bank deposits wouldn't be guaranteed in full. The outcome would be "starting a run on every bank in the country and disrupting the world system," he said.

"A lighted match can be turned into a conflagration or it can be blown out," he said.

The Berkshire chief added that his company stands ready to help if the banking system grinds to a halt. "It shouldn't, I don't think it will, but I think it could," he said.

Buffett underlined his faith in the security of bank deposits in a recent interview with CNBC. He offered to bet $1 million that no American depositor would lose a single dollar in a bank failure over the next year.

During the Berkshire meeting on Saturday, he disclosed that nobody has taken him up on his offer. He also underscored that fear is contagious, and slammed the messaging by politicians, federal agencies, and the press to reassure people about bank deposits and the debt ceiling as "very poor."

The failure of SVB and Signature Bank has been followed by an emergency merger between Swiss banks UBS and Credit Suisse, and JPMorgan's takeover of the troubled First Republic Bank. The prospect of further bank runs has stoked fears that lenders may pull back, causing a credit crunch and tanking the US economy.