Audits Failed to Determine Causes for Signature Bank and SVB Collapses

( – According to a Wall Street Journal Monday report, audits by some of the most important accounting firms didn’t identify the failing investments that led to the collapses of the Signature Bank and the Silicon Valley Bank (SVB).

Apparently, accounting juggernaut KPMG managed to complete its audit of the tech lender just two weeks before it had to be shut down by California regulators. While KPMG flagged potential losses on loans, the firm failed to provide any type of warning about the massive unrealized Treasury bonds’ losses that the tech lender was suffering at the moment, which led to a significant decline in value because of the rising interest rates.

Those unrealized losses forced the bank to increase additional cash, which prompted its venture capitalists and tech depositors to pull their money out as fast as possible. Following this situation, regulators took the surprising step of protecting every single deposit to stave off a confidence crisis in the US banking system.

As reported by the Journal, different sources explained that the interest rate risk of the SVB would have been classified as a “critical audit matter,” representing a delicate situation since the Public Company Accounting Oversight Board recently mandated that investors receive the most detailed data about company books.

The newspaper revealed that audits for other nine US banks that were exposed to the highest amount of unrealized bond losses failed to highlight the problem in their 2022 financial statements. The tech lender’s audit will probably draw the attention of US regulators and some of its shareholders who are suing SVB.

According to the US Federal Deposit Insurance Corporation, some US banks had unrealized losses worth $620 billion at the end of the year 2022. However, many regulators have insisted that these US banks are properly capitalized and prepared to dodge the bullet and prevent a massive crisis like the one experienced in 2008.

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