SVB Bank’s collapse in March 2023, the second largest bank collapse in U.S history, sent shockwaves that reverberated through economies and startups all over the globe. Many were on high alert for a looming recession, but no one expected Silicon Valley Bank to be among the first banks to collapse.
Silicon Valley Bank was one of the biggest lenders to startups all over the globe including India and the U.K. which is why many businesses and investors alike are wondering what its effects are going to be on the global economy in the foreseeable future.
KMPG LLP, an accounting firm which had been auditing Silicon Valley Bank for almost thirty years has come under the spotlight, especially since it signed off SVB’s audit report merely two weeks prior to its collapse. KMPG stands by its audit while many shareholders and investors continue to criticize its lack of transparency.
A global economic event such as the collapse of SVB Bank makes it challenging to comprehend the impact it can have on different economies worldwide. So, in today’s post we will discuss the effects of Silicon Valley Bank’s Collapse on different parts of the world including the UAE and MENA region while covering how thorough audits can help businesses and investors mitigate risk.
Silicon Valley Bank Collapse
First, let’s recap some of the events and reasons that led to the collapse of Silicon Valley Bank. Financial Analysts said that the main cause of SVB’s collapse was the classification of large financial assets as hold to maturity securities. The value of said financial assets fell in value from 91 billion USD to 76 billion USD in a short amount of time.
Since these assets were classified as hold to maturity securities, this decline in value was not recorded or recognized. Now had these assets been evaluated at fair value, SVB’s management and its depositors would have been able to take corrective action accordingly and potentially prevent SVB’s collapse. Since then, the CFA institute sent a white paper to the FASB to eliminate the use of hold to maturity classifications.
On the other hand, financial analysts suggested that the expanded use of fair value would make it more difficult for corporations to trade using international standards.
The Aftermath of Silicon Valley Bank Collapse
SVB’s failure had the biggest effect on startups all over the globe since it mainly catered to tech startups in the U.S, Europe, and India as well. The Federal Deposit Insurance Corporation in the U.S assured all depositors of the failed bank that their funds will remain intact. However, the same can’t be said for investors and shareholders of SVB now that their shares have no value whatsoever after the bank’s collapse.
Many startups and businesses are concerned about the aftermath of SVB Bank’s collapse. However, the impact in the MENA regions is quite minimal compared to other parts of the world. The collapse of SVB Bank mainly highlighted the need for financial institutions and lenders that can help fund Startups in North Africa.
Even countries with high startup density in the MENA region such as the UAE have little to worry about with a strong banking system backed by the government that leaves its economy with little to no vulnerabilities.
How Auditing firms can help reduce risk
Despite KMPG facing a lot of backlash regarding its quality of audits, it continues to stand by its audit saying that it meets professional standards and that SVB bank’s collapse was a result of market driven events happening after its audit was released. That being said, is KMPG to blame for warning investors?
Yes and no, KMPG couldn’t have predicted the series of events that led to depositors withdrawing funds which in turn led to the bank’s failure. However, KMPG could have highlighted the lack of diversity in Silicon Valley Bank’s pool of investments. Additionally, something can be said about the long-standing relationship between KMPG and SVB that could have impacted the audit quality of KMPG.
Take Calculated Risks with Am Audit
Now that we have established the importance of thorough audits and how they can help mitigate risk. Business owners and investors should be careful which auditing firms they associate themselves with to always be ahead of the curve. Take a step forward with confidence when you choose Am Audit’s Services.
