Bloomberg Tax
March 27, 2023, 9:00 AMUpdated: March 27, 2023, 5:58 PM

SVB Reignites ‘Third-Rail’ Accounting Debate Over Fair Value (1)

Nicola M. White
Nicola M. White

The collapse of Silicon Valley Bank is reigniting one of the most contentious debates in accounting history over banks that stash outsized portions of assets in a financial statement category that critics say hides risk for big losses.

Silicon Valley Bank put 43% of its portfolio in long-term assets that were recorded at the price it paid plus some adjustments. That’s nearly double the 22% average among the more than 230 banks in the Russell 3000 for which data is available, according to a Bloomberg analysis.

Relative to the average bank, Silicon Valley Bank recorded a larger share of its assets in a way that masked how much it was vulnerable to interest rate hikes. The majority of banks keep most of their assets— nearly 80%—in a category called “available for sale,” the analysis shows, which means the holdings are reported at fair value, with gains and losses recorded every quarter. This can lead to fewer surprises if banks have to cash them out.

There are some outliers with even more long-term holdings than Silicon Valley Bank. Four banks—Prosperity Bancshares Inc., Cambridge Bancorp, Shore Bancshares Inc., and First Republic Bank—report more than 75% of their holdings as assets they plan to hold long term.

When a bank labels an asset as “held to maturity,” it means it plans to hang onto the bond or treasury note and not sell it anytime soon. Under US accounting rules, these assets get recorded at the price they originally cost, with some adjustments, not their market value. Rising interest rates shrank the value of Silicon Valley Bank’s held-to-maturity assets, but the accounting masked just how much is at stake if there’s a run on a bank like in SVB’s case. That’s a concern for a well-known investor group calling on US accounting standard-setters to change the accounting rules.

Doing so would reopen a decades-long debate, pitting proponents of what’s called amortized cost against backers of fair value, also known as mark-to-market. Fair value purports to give the most current view of an asset’s value but it also injects volatility into bank financials — making investors and customers skittish in a downturn.

“It’s a little bit of a third-rail issue,” said former Financial Accounting Standards Board Chair Robert Herz, who endured five hours of Congressional grilling in March 2009 about whether FASB’s mark-to-market accounting policies contributed to or exacerbated the 2008 financial crisis.


Among the handful of Russell 3000 banks at the high-end of the “held to maturity” holdings, First Republic Bank has drawn the most attention.

First Republic, which specializes in private banking and wealth management, received a $30 billion emergency lifeline from other lenders on March 16 to meet borrower demands and as bankers and regulators sought to quell fears about the financial system. The bank reported 89% of its assets at amortized cost, according to its most recent securities filing.

The nation’s four largest banks report more assets as held-to-maturity compared to the average. JPMorgan Chase & Co., Bank of America Corp., Citibank Inc., and Wells Fargo & Co. park 42%, 55%, 34%, and 60%, respectively, of their assets in long-term holdings.

For more than 60 banks, the accounting debate would be a nonissue. More than 28% of the surveyed institutions record no assets in the held-to-maturity bucket at all, reporting all of their assets at fair value with changes recorded in equity. The largest among them—New York Community Bancorp Inc., with $90 billion in assets—on March 19 assumed the deposits and some of the loans of Signature Bank, the crypto-friendly New York bank that regulators shuttered on March 12.

First Citizens BancShares Inc, which regulators late Sunday announced agreed to buy Silicon Valley Bank, holds 53% of its assets in the long-term bucket.

‘Do The Math’

Investing in long-term assets that get labeled held-to-maturity is not by itself an eyebrow-raising strategy. Banks have to stash their money somewhere, and long-term assets like treasuries and municipal bonds are usually considered safe.

But rising interest rates can make those long-term assets worth less than their original value. Although banks report these assets at costs, publicly-traded banks are required to also disclose the fair value, which captures swings in value. The information is there; and it just requires digging.

“You have to do the math.” said Paul Noring, managing director of Berkeley Research Group’s financial institutions practice.

In Silicon Valley Bank’s case, the long-term portfolio was underwater by $15 billion. If the bank had been required to report the fair value on the balance sheet, its problems would have been revealed sooner, said Sandy Peters, head of global advocacy for the CFA Institute.

“This is a reminder of why we wanted the better accounting,” Peters said. “We said it loudly and proudly in 2009, 2010, and 2011 and 2012 and we got roundly criticized for it.”

FASB gave its standard response that it considers all requests from stakeholders, but did not make promises to follow up.

If FASB does reopen the debate, it would have to brace for an impact. Banks and regulators both rejected calls for more fair value accounting in bank financial statements last time around, saying it didn’t make sense for unrealized gains or losses of long-term assets to be considered part of a bank’s financial performance.

There is still fierce sentiment on all sides of the debate, with some insisting that forcing fair value measurement for all assets—regardless of a bank’s intent to hold or sell—could make financial reporting worse.

“Mark-to-market creates a circular firing squad,” said Brian Wesbury, chief economist at First Trust Advisors L.P. “If we had it today, the Silicon Valley Bank problems would have spread intensely like a forest fire.”

— With assistance from Tom Contiliano of Bloomberg.

(Adds detail about First Citizens BancShares Inc. agreeing to buy Silicon Valley Bank.)

To contact the reporter on this story: Nicola M. White in Washington at

To contact the editors responsible for this story: Jeff Harrington at; Yuri Nagano at

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