A CPA's Perspective on the SVB Collapse: Rethinking Financial Protection and Reporting for Investors

Recently, I listened to an episode of the "All In" podcast (the top technology podcast in the U.S.), where the hosts discussed their frustrations with the federal government, FDIC protection, and the need for better oversight of regional banking. As a Certified Public Accountant, I felt compelled to share my thoughts on these topics and offer a different perspective on how we can better protect investors and improve financial reporting for the startup ecosystem.

The Real Purpose of FDIC Protection

It's crucial to understand the original purpose of the FDIC. Created in the 1930s, the FDIC's primary aim was to insure the deposits of family businesses, mostly family farms in the heartland. It was never intended to protect the fortunes of wealthy people or the working capital of technology startups. With this in mind, it's important to acknowledge that the FDIC may not serve the same purpose for venture capitalists and startup founders as it does for small businesses and consumers.

Regulation vs. Innovation

While the podcast hosts advocated for increased federal government oversight of regional banking, I'd caution against this. More regulation could stifle innovation without necessarily providing the protection investors are looking for. Eliminating all risk associated with bank deposits would mean less capital loaned to new startups. It's crucial to strike the right balance between regulation and innovation in the financial sector.

The Importance of Audited Financial Statements

Investors already have a system designed to protect them: audited financial statements. These statements are issued quarterly by every bank and publicly traded corporation. However, they are often ignored due to the increasing complexity of accounting rules, which increase costs while providing less and less useful information to investors over time.

A Call for Simplified Financial Reporting

The recent Silicon Valley Bank collapse highlights the flaws in our current financial reporting system. Critical information was buried in footnotes, and auditors allowed management to manipulate earnings. The entire system seems rigged in favor of management, failing to serve investors effectively.

To improve investor protection, we should be lobbying Congress and the administration to replace the technocrats running the Financial Accounting Standards Board with finance professionals and investors. They can design a simplified system of financial reporting that could be faster than quarterly, enabling investors to assess risks more effectively.

Auditor Independence and Real-time Dashboards

Lobby the SEC to change how auditors get paid, ensuring they become truly independent and are more inclined to challenge management on earnings manipulation. External auditors working for stock exchanges could even create real-time dashboards with assets and liabilities, providing better insights to investors than regulators — who might still not act on this information.

Conclusion: We Need Better Financials, Not More Regulation

In summary, investors would benefit more from focusing on lobbying for simplified and faster financial reporting, and truly independent auditors. These changes would provide the accurate and timely information investors need to assess risks and make informed decisions. As a CPA, I strongly believe that transforming our financial reporting system and ensuring auditor independence will create a more transparent, investor-friendly environment than increased oversight by the government.

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