Senate Report on SVB Fails to Recognize Accounting Illiteracy

They say that hindsight is 20/20, but US senators and CEOs are having a hard time remembering the role of accounting in Silicon Valley Bank’s demise.

A new report from Senate Democrats faults KPMG LLP for issuing clean audit opinions before the bank’s collapse and suggests auditors should have raised louder alarms about SVB’s mounting risks.

Senators aren’t the only ones under this impression. In a July episode of the Acquired podcast, JPMorgan Chase & Co. CEO Jamie Dimon made several comments about accounting standards and their effects on SVB, including that “you can drive a truck through accounting rules.”

At first glance, these critiques seem compelling. But both Dimon and the Senate report rest on a fundamental misunderstanding of what accounting is designed to do—and what it already revealed. Accounting didn’t hide the risks that toppled SVB; it spotlighted them.

That one of the most respected business leaders of our time, and now a group of US senators, misses this point underscores a deeper issue: The challenge lies not with the reporting rules themselves, but with the widespread lack of familiarity in using and interpreting financial information.

Risks in Plain Sight

SVB collapsed in March 2023. The bank had loaded up on long-dated US treasuries during the low-interest-rate era. As rates climbed, the market value of these “safe” investments plummeted.

The bank categorized most of these securities as “held to maturity,” meaning the bank wasn’t required to adjust their balance-sheet value as prices fell—at least not directly. That’s the loophole Dimon referenced.

But the “hidden” risks weren’t hidden at all. US accounting rules require all public companies to disclose the decline in value of held-to-maturity investments in the footnotes offered as a companion to the financial statements.

In SVB’s annual report, filed just weeks before the collapse, those footnotes clearly showed more than $15 billion in unrealized losses (about a 17% decline). SVB even went further, reporting the fair-value losses directly on the face of the balance sheet.

Anyone who actually looked at the balance sheet would have had a hard time missing the bank’s exposure.

Senate Misdiagnosis

The Senate report makes the same mistake. It suggests that it would have had to disclosed decline in value that because the bank was at risk of selling its held-to-maturity investments in March when, again, this decline was clearly disclosed in SVB’s annual report filed weeks earlier.

This wasn’t the senators’ only confusion about accounting. The Senate report levels its harshest criticism at KPMG for not warning more loudly about SVB’s risks. But that critique misses the mark entirely.

Under US auditing standards, auditors are responsible for checking whether the financial statements comply with US accounting standards, not for predicting future bank runs or evaluating business strategy. By treating “business risk” as “audit failure,” the Senate report confuses the role of auditors with that of regulators, investors, or management.

This isn’t a minor slip—it reflects a deeper confusion of accounting itself. Auditors verified that SVB’s financial disclosures were accurate and complete under the rules.

And they were—the decline the value of their investments was reported on their balance sheet. The report’s claim that the risks weren’t flagged loudly enough is really an indictment of how disclosures were interpreted (or ignored), not of whether they existed.

A Broader Problem

Our system is awash with financial information, but far too few people know how to use it. Our experience as researchers and educators points to two reasons.

One is a decline in general financial literacy. Accounting is considered the language of business, yet interest in learning accounting has been falling for years. Another reason is that the greater availability of financial statement data has made deep reading obsolete.

Although increasing the spread of information is generally a good thing, the proliferation of standardized platforms has shifted how financial data is consumed. Analysts and investors increasingly rely on summaries, dashboards, and generic metrics scraped from filings and stripped of context.

What gets lost in this shift is often the most critical information: footnote disclosures that offer essential context, nuanced classifications that provide clarity, and company-specific insights that can best illuminate a company’s financial position. The irony is that as availability of information has grown, meaningful human engagement with that information has diminished.

The solutions will be complicated and multifaceted, but our experience at the McCombs School of Business is instructive. Our recently overhauled version of the introduction to financial accounting course allows undergraduates to move past traditional bookkeeping lessons and explore the interdisciplinary nature of financial information, gain a broader context from footnotes from companies such as Apple Inc. and Starbucks Corp., and be able to ask better questions.

Even with this progress, there is more work ahead, as the demand from finance majors is exceptionally low. Only about 12% choose the undergraduate financial statement analysis elective.

That’s troubling, because finance without accounting is like sailing without a compass. You might keep afloat, but you’ll have no idea where you’re headed or what’s lurking beneath the surface.

The downfall of SVB was a failure of attention, judgment, and perhaps humility—not of accounting. Financial reports didn’t hide the risk; they revealed it.

But the signals went unheeded. That should prompt less handwringing about the rules underlying all financial information and more reflection on how we teach, learn, and apply them in practice.

If we want capital markets to function effectively—and to avoid future SVBs—we must foster a culture where financial statements aren’t just parsed by machines but read by people with the skills to synthesize and interpret them thoughtfully. That means reimagining our approach to financial literacy across disciplines and resisting the temptation to blame the rulebook when the problem actually is how little of it we choose to read.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Andrew Belnap is an assistant professor of accounting and Patrick Badolato is a professor of instruction in accounting at the McCombs School of Business at the University of Texas at Austin.

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