Top Audit Firm Defends Giving Clean Bill Of Health To SVB, Signature Bank Weeks Before Failure
Audit giant KPMG is standing by its audits of Silicon Valley Bank (SVB) and Signature Bank, which collapsed when customers rushed to withdraw their savings in panic-fueled bank runs.
The two banks failed not long after their respective annual reports were certified by KPMG, one of the so-called “Big Four” accounting firms, a list that also includes Deloitte, Ernst & Young, and PricewaterhouseCoopers.
Paul Knopp, CEO of KPMG’s U.S. operations, defended the firm’s audit work on SVB and Signature in an interview with Financial Times during a Tuesday event at the NYU Stern Center for Sustainable Business.
He pointed to “market-driven events” and “unpredictable” customer reactions to such events as examples of factors behind bank failures that audit work is powerless to address.
“As we take into account everything we know today … we stand behind the reports we issued and we think we followed all professional standards,” Knopp told the outlet.
Knopp insisted that KPMG “absolutely” considered all the facts that were known up until the day the audits were issued, adding that it’s impossible to know with certainty what will happen after the reports are released.
He didn’t go into the specifics of the causes of the twin bank failures, speaking only in general terms about “actions” and “reactions” in the context of bank runs.
The SVB collapse came as depositors rushed for the exits as word spread that the bank had booked huge losses on its bond portfolios, which eroded in value due to rising interest rates.
Signature’s failure came as panic spread from the collapse of SVB and as Signature’s connections with the crypto space seemed to spook depositors, who rushed to withdraw their money.
Both banks had above average amounts of uninsured deposits, meaning amounts above the Federal Deposit Insurance Corporation’s (FDIC) deposit guarantee of $250,000 per depositor per account category. Uninsured amounts are subject to losses in case of bank failure.
‘Going Concern’ Warnings
KPMG signed its audit of SVB on Feb. 24, two weeks before the bank failed. The Signature audit was signed off on by KMPG on March 1, a little over a week before its collapse.
Questions have been raised as to why neither of KPMG’s two audits included a so-called “going concern” warning, which would be a requirement if the audit firm had substantial doubt as to whether the banks could survive over the next 12 months.
KPMG did not immediately respond to a request for comment by The Epoch Times nor to a question about why the two audits didn’t include such a warning.
Experts say it’s likely that KPMG will face regulatory scrutiny over the audits.
“Common sense tells you that an auditor issuing a clean report, a clean bill of health, on the 16th-largest bank in the United States that within two weeks fails without any warning, is trouble for the auditor,” Lynn Turner, former chief accountant of the Securities and Exchange Commission (SEC), said in remarks to the Wall Street Journal.
The failures of SVB and Signature were the second and third biggest bank collapses in U.S. history and drew fears of contagion risk. This prompted U.S. financial authorities to adopt a “systemic risk exemption” and expand the FDIC’s guarantee to cover all the deposits at the two banks, so including money that would normally be uninsured and therefore subject to market discipline and losses.
Wed, 03/15/2023 – 13:00