KPMG overlooked serious risks at three regional banks that collapsed in 2023, a U.S. Senate report has found, raising questions about the quality of oversight by one of the world’s largest audit firms.
According to Senate Democrats on the Homeland Security and Governmental Affairs Permanent Subcommittee on Investigations, the firm was aware of longstanding problems at Silicon Valley Bank, Signature Bank, and First Republic Bank but still issued clean audit opinions ahead of their failures. The banks were unprepared for rising interest rates, which eroded the value of their securities and loans, triggering depositor withdrawals.
The report accused KPMG of “willful blindness” and called for reforms in the auditing industry. “Significant reforms to the auditing industry are needed to promote transparency and better protect consumers,” said Sen. Richard Blumenthal (D., Conn.), the panel’s ranking member.
KPMG rejected the findings, saying the report reflects a “misguided and erroneous opinion” and leaves out critical context. The firm said it stands by its audit work and has previously told lawmakers that auditors are not responsible for assessing risky business strategies.
The subcommittee highlighted instances where KPMG allegedly ignored red flags, including:
- Silicon Valley Bank: no warning about the bank’s survival just two weeks before its collapse.
- Signature Bank: dismissal of credible fraud allegations and acceptance of poor record-keeping.
- First Republic Bank: failure to alert the board to concerns over its viability shortly before its failure.
The report stopped short of saying KPMG violated audit standards and noted that regulators have not suggested the firm contributed directly to the banks’ downfall, The Wall Street Journal said. The Public Company Accounting Oversight Board (PCAOB) declined to speak on the matter with WSJ reporters.
The three failed lenders each held between $100 billion and $200 billion in assets, the newspaper said.
Read more at The Wall Street Journal
Read the PSI report here