Accounting firm KPMG issued clean audits for three US banks that recently collapsed: Silicon Valley Bank, Signature Bank, and First Republic Bank. That’s according to the Democrat-led Senate Permanent Subcommittee on Investigations (PSI), which is demanding to see all of KPMG’s communications with state and federal regulators.

In a letter to KPMG CEO Paul Knopp, PSI Ranking Member Ron Johnson (R-Wisconsin) and Chair Richard Blumenthal (D-Connecticut) note that in the days leading up to the bank failures, KPMG had “issued these audits without qualification” but that later, the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve issued reports that “identified ‘foundational and widespread’ weaknesses with SVB and Signature’s internal audit and risk management functions.”

The outstanding question is why the bank auditors failed to flag the serious issues.

In 2001, the accounting firm Arthur Andersen took heat for issuing clean audits of the energy company Enron prior to its massive failure.

The full text of the Congressional letter can be found here and below.

VIA ELECTRONIC MAIL

Mr. Paul Knopp
Chair and Chief Executive Officer KPMG LLP
345 Park Avenue
New York, NY 10154

Dear Mr. Knopp:

May 3, 2023

Since March 10, 2023, three of the four largest bank failures in U.S. history have occurred—Silicon Valley Bank (SVB) on March 10, Signature Bank (Signature) on March 12, and First Republic Bank (First Republic) on May 1.1 Combined, these three failed banks held more assets than the 25 banks that failed in 2008, the first year of the Great Recession.2 SVB, Signature, and First Republic all reportedly received clean audits from KPMG LLP (KPMG) shortly before they failed.3 Specifically, KPMG published clean audits of SVB on February 24, 2023, 14 days before it failed, of Signature on March 1, 2023, 11 days before it failed, and of First Republic on February 28, 2023, 16 days before it received a $30 billion bailout. 4 Given KPMG’s role in assessing the financial health of these banks, we write to request records related to KPMG’s audits and practices.

SVB had approximately $200 billion in total assets and “was best known for courting young, risky start-ups that other banks would not bank with,” and working with venture capital firms.5 As a result of SVB’s focus on start-ups and venture capital firms, SVB reportedly found

1 10 Days That Have Roiled Markets: A Timeline of the Banking Chaos, The New York Times (Mar. 20, 2023) (https://www nytimes.com/article/svb-silicon-valley-bank-collapse-timeline html); 3 Failed Banks This Year Were Bigger than 25 That Crumbled in 2008, The New York Times (Apr. 30, 2023)
(https://www nytimes.com/interactive/2023/business/bank-failures-svb-first-republic-signature.html).

2 3 Failed Banks This Year Were Bigger than 25 that Crumbled in 2008, The New York Times (Apr. 30, 2023) (https://www nytimes.com/interactive/2023/business/bank-failures-svb-first-republic-signature.html).
3 KPMG Gave SVB, Signature Bank Clean Bill of Health Weeks Before Collapse, Wall Street Journal (Mar. 13, 2023) (https://www.wsj.com/articles/kpmg-faces-scrutiny-for-audits-of-svb-and-signature-bank-42dc49dd); KPMG Gave First Republic a Clean Audit Weeks Before Bailout, Bloomberg Tax (Mar. 16, 2023) (https://news.bloombergtax.com/financial-accounting/kpmg-gave-first-republic-a-clean-audit-weeks-before-bailout). 4 KPMG Gave SVB, Signature Bank Clean Bill of Health Weeks Before Collapse, Wall Street Journal (Mar. 13, 2023) (https://www.wsj.com/articles/kpmg-faces-scrutiny-for-audits-of-svb-and-signature-bank-42dc49dd); KPMG Gave First Republic a Clean Audit Weeks Before Bailout, Bloomberg Tax (Mar. 16, 2023), (https://news.bloombergtax.com/financial-accounting/kpmg-gave-first-republic-a-clean-audit-weeks-before-bailout). 5 3 Failed Banks This Year Were Bigger than 25 that Crumbled in 2008, The New York Times (Apr. 30, 2023) (https://www nytimes.com/interactive/2023/business/bank-failures-svb-first-republic-signature.html); Mortgages,

Mr. Paul Knopp May 3, 2023 Page 2 of 5

itself in an unusual position for a bank—it served customers with large cash holdings and little demand for traditional revenue generating products such as loans.6 As a result, SVB invested roughly half of its total assets, $91 billion, in long term Treasury bonds and U.S. government mortgage backed securities.7 When the Board of Governors of the Federal Reserve System (Federal Reserve) began raising interest rates, SVB’s long-dated securities, which reportedly were not “marked to market on the bank’s balance sheet,” lost value.8 In March 2023, facing increased deposit withdrawals, SVB sold $21 billion of their assets to raise funds and realized a $1.8 billion loss.9 As customers learned of these events, they began withdrawing their deposits at an accelerated rate.10 On March 9, 2023, SVB customers reportedly withdrew $42 billion in deposits.11 The next day, $100 billion was scheduled to be withdrawn if the bank had not been shuttered, representing a historic bank run that ultimately resulted in SVB’s failure.12

SVB’s failure sparked fears of contagion across the financial sector.13 Two days after SVB’s failure, on March 12, 2023, Signature, a New York-based bank with approximately $110 billion in assets, failed following a large number of customer withdrawals.14 On May 1, 2023, First Republic failed, surpassing SVB as the second largest bank failure in U.S. history.15Signature and First Republic reportedly had similar issues to SVB.16

Wine and Renovations: Silicon Valley Bank’s Deep Tech Ties, The New York Times (Mar. 17, 2023) (https://www nytimes.com/2023/03/17/technology/svb-tech-start-ups.html).
6 Oaktree Capital, Lessons from Silicon Valley Bank (Apr. 17, 2023) (https://www.oaktreecapital.com/insights/memo/lessons-from-silicon-valley-bank).

7 Id.
8 Id.; According to the Federal Reserve, SVB “chose to invest a large portion of client deposits in long-dated, held- to-maturity (HTM)… securities” and that “Classification as HTM enables the securities booked in this fashion to be carried at amortized historical cost rather than at their fluctuating mark-to-market value. Generally, if a bank sells a portion of its HTM portfolio, the entire portfolio would be required to be … marked to market.” See Board of Governors of the Federal Reserve System, Review of the Federal Reserve’s Supervision and Regulation of Silicon Valley Bank, Apr. 2023, p. 21, (https://www federalreserve.gov/publications/files/svb-review-20230428.pdf).
9 SVB Says Goldman Sachs Was Buyer of Portfolio It Booked Losses On, Reuters (Mar. 14, 2023)
(https://www reuters.com/business/finance/goldman-sachs-bought-svbs-bond-portfolio-lender-says-2023-03-14/). 10 Oaktree Capital, Lessons from Silicon Valley Bank (Apr. 17, 2023) (https://www.oaktreecapital.com/insights/memo/lessons-from-silicon-valley-bank); SVB Customers tried to withdraw nearly all the bank’s deposits over two days, Fed’s Barr testifies, CNBC (Mar. 28, 2023) (https://www.cnbc.com/2023/03/28/svb-customers-tried-to-pull-nearly-all-deposits-in-two-days-barr-says.html).
11 SVB Customers Tried to Withdraw Nearly All the Bank’s Deposits over Two Days, Fed’s Barr testifies, CNBC (Mar. 28, 2023) (https://www.cnbc.com/2023/03/28/svb-customers-tried-to-pull-nearly-all-deposits-in-two-days- barr-says.html).
12 Id.
13 Silicon Valley Bank Meltdown Sparks Contagion Fears: ‘We found our Enron’, New York Post (Mar. 10, 2023) (https://nypost.com/2023/03/10/silicon-valley-bank-meltdown-sparks-contagion-fears/).
14 Signature Bank Becomes Next Casualty of Banking Turmoil After SVB, Reuters (Mar. 13, 2023)
(https://www reuters.com/business/finance/new-york-state-regulators-close-signature-bank-2023-03-12/).
15 First Republic Bank Is Seized, Sold to JPMorgan in Second-Largest U.S. Bank Failure, (May 1, 2023) (https://www.wsj.com/articles/first-republic-bank-is-seized-sold-to-jpmorgan-in-second-largest-u-s-bank-failure- 5cec723).
16 Id.; Why Signature Bank Failed, Barrons (Mar. 14, 2023) (https://www.barrons.com/articles/signature-bank-shut- down-collapse-a0adf63f).

Mr. Paul Knopp May 3, 2023 Page 3 of 5

KPMG released audits of all three banks in the days leading up to their failures.17 KPMG issued these audits without qualification, despite the fact that the U.S. Public Accounting Oversight Board (PCAOB) urges auditors to disclose whether they perceive a “substantial doubt about [an] entity’s ability to continue as a going concern” upon issuing an annual financial statement.18 On April 28, 2023, the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve issued reports on the failures of SVB and Signature.19 These reports identified “foundational and widespread” weaknesses with SVB and Signature’s internal audit and risk management functions.20

KPMG also appears to have had longstanding relationships with all three banks, having served as SVB’s auditor for nearly 30 years and Signature’s auditor for over 20 years prior to their failures.21 Furthermore, SVB’s Head of Internal Audit had worked for KPMG in its external audit group for nearly a decade and the KPMG audit partner who signed Signature’s 2020 audit in March 2021 became the bank’s Chief Risk Officer in June 2021.22 Additionally, the Chief Executive Officer of First Republic had worked for KPMG for 16 years, including five years as an audit partner.23

Pursuant to its authority under Senate Resolution 59 (118th Cong.) and rule XXVI of the Standing Rules of the Senate, the Permanent Subcommittee on Investigations is reviewing matters relating to auditing and risk management standards for financial institutions. To assist the Subcommittee in better understanding these issues, please provide the documents and information listed below by May 24, 2023. For the purposes of this request, the term “KPMG” includes, but is not limited to KPMG International, KPMG US, and any other subsidiaries, divisions, partnerships, properties, affiliates, branches, groups, special purpose entities, joint

17 The audits were conducted by KPMG LLP, the U.S. subsidiary of KPMG International, which employs over 265,000 individuals worldwide and provides audit and advisory services for more than 82% of Fortune Global 500 companies. KPMG, KPMG Fast Facts (accessed Apr. 24, 2023) (https://kpmg.com/us/en/home/about/kpmg-fast- facts html); KPMG, Who We Are (accessed May 3, 2023) (https://kpmg.com/xx/en/home/about/who-we-are html). 18 Public Company Accounting Oversight Board, AS 2415: Consideration of an Entity’s Ability to Continue as a Going Concern (2002); KPMG Gave SVB, Signature Bank Clean Bill of Health Weeks Before Collapse, Wall Street Journal (Mar. 13, 2023) (https://www.wsj.com/articles/kpmg-faces-scrutiny-for-audits-of-svb-and-signature-bank- 42dc49dd); KPMG Gave First Republic a Clean Audit Weeks Before Bailout, Bloomberg Tax (Mar. 16, 2023) (https://news.bloombergtax.com/financial-accounting/kpmg-gave-first-republic-a-clean-audit-weeks-before-bailout). 19 FDIC, FDIC’s Supervision of Signature Bank (Apr. 28, 2023); Board of Governors of the Federal Reserve System, Review of the Federal Reserve’s Supervision and Regulation of Silicon Valley Bank (Apr. 28, 2023) (https://www federalreserve.gov/publications/files/svb-review-20230428.pdf).

20 Id.; see, e.g. Federal Reserve Bank of San Francisco, Memorandum re Recession Readiness – Silicon Valley Bank (Dec. 1, 2022) (https://www.federalreserve.gov/supervisionreg/files/memorandum-re-recession-readiness-silicon- valley-bank-20221201.pdf).
21 Why Was KPMG Still Auditing Silicon Valley Bank?, Bloomberg (Mar. 20, 2023) (https://www.bloomberg.com/opinion/articles/2023-03-20/why-was-kpmg-still-auditing-silicon-valley-bank); KPMG Defends Clean Audits of SVB and Signature Bank, consulting.us (Mar. 17, 2023) (https://www.consulting.us/news/8876/kpmg-defends-clean-audits-of-svb-and-signature-bank).

22 Failed Signature Bank Executive Ranks Filled by KPMG Audit Alums, Bloomberg Tax (Mar. 16, 2023) (https://news.bloombergtax.com/financial-accounting/failed-signature-bank-executive-ranks-filled-by-kpmg-audit- alums); Federal Reserve Bank of San Francisco, SVB 2018 CAMELS Examination Report (Mar. 6, 2019); (https://www federalreserve.gov/supervisionreg/files/svb-2017-camels-examination-report-20180214.pdf).
23 KPMG Gave First Republic a Clean Audit Weeks Before Bailout, Bloomberg Tax (Mar. 16, 2023) (https://news.bloombergtax.com/financial-accounting/kpmg-gave-first-republic-a-clean-audit-weeks-before-bailout).

Mr. Paul Knopp May 3, 2023 Page 4 of 5

ventures, predecessors, successors, or any other entity in which KPMG had or has a controlling interest. The term “Banks” refers to First Republic Bank, Signature Bank, Silicon Valley Bank, any other subsidiaries, divisions, partnerships, properties, affiliates, branches, groups, special purpose entities, joint ventures, predecessors, successors, or any other entity in which these financial institutions had or has a controlling interest. The period covered by this request is January 1, 2019 to present unless otherwise specified.

1. All communications between KPMG and the Banks between January 1, 2023, and present, including but not limited to all communications referring or relating to the Banks’ failures.
2. All records24 referring or relating to KPMG’s 2022 audits of the Banks, including but not limited to, any communications with the Banks before and after the 2022 audit had been signed and completed.
3. A complete list of all advisory work, audits, tax consultations, or other engagements undertaken by KPMG for the Banks in the covered period, including any ongoing or incomplete work. Please list the team lead, final invoice, and a brief description of the work.
4. All records referring or relating to KPMG’s advisory work, audits, tax consultations, or other engagements undertaken by KPMG for the Banks in the covered period. This includes, but is not limited to:
   1. Communications, including meeting minutes and memoranda, between KPMG and bank management, including the Banks’ executive leadership, audit committee, and board of directors.
   2. Communications between KPMG and the Banks’ internal audit, risk management, and legal and compliance functions.
   3. Communications between KPMG and the PCAOB, California Department of Financial Protection and Innovation, New York Department of Financial Services, Federal Reserve, Federal Reserve Bank of New York, Federal Reserve Bank of San Francisco, FDIC, Office of the Comptroller of the Currency, or any other relevant regulatory entity.
   4. All work products from each engagement, both public and private, including full draft history.
5. All written agreements outlining the scope of each engagement undertaken by KPMG on behalf of the Banks in the covered period, including all addendums and modifications.

24 “Records” include any written, recorded, or graphic material of any kind, including letters, memoranda, reports, notes, electronic data (emails, email attachments, and any other electronically-created or stored information), calendar entries, inter-office communications, meeting minutes, phone/voice mail or recordings/records of verbal communications, and drafts (whether or not they resulted in final documents).

The Lemonade Mermaid Store

Unique gifts for Land or Sea Mermaids, Mer-pets and Little Mermaids!

Left: Our signature Fish Scales design tote bag in Citrus

SHOP NOW