The Silicon Valley Bank crisis highlights the need for next-generation risk accounting

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Much has been written about the Silicon Valley Bank (SVB) collapse. The consensus view is that inadequate risk management was the cause.

However, we mustn’t overlook the fact that SVB’s 2022 annual report (Form 10K) showed consolidated income before tax for the year of $2.2 bn and rated the bank “well capitalized” under predefined capital rules. So, a bank that was reported as financially sound at the end of December was closed two months later due to its insolvency.

As Peter writes in his article, “Backward-looking financial statements that require only the disclosure of accepted risks without accounting for them are obviously of little use or relevance”.

So, not only risk managers but also accountants need to “Heed SVB’s Risk Lessons” and establish next generation risk accounting to address the quantification of non-financial risks and accounting for the associated expected losses.

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