Silicon Valley Bank UK Limited avoids formal insolvency during a tumultuous weekend of volatility and rescue
Over the weekend, the Bank of England, the Prime Minister Rishi Sunak and the Chancellor entered crisis talks to save Silicon Valley Bank UK Limited (“SVBUK”) from an insolvency process planned for Sunday evening, 12 March 2023.
SVBUK’s US parent bank, Silicon Valley Bank (“SVB”), collapsed on Friday the 10 March 2023 when the California Department of Financial Protection & Innovation appointed the Federal Deposit Insurance Corporation as receiver of SVB. This was as a result of customers rushing to withdraw their funds from SVB when they learned that the bank had lost $1.8 billion on US government bonds, due to rising interest rates. SVB’s demise quickly spread to their UK subsidiary, SVBUK, and threatened to bring down the UK’s multi-billion-pound start-up technology and life sciences sector which was disproportionately reliant on SVBUK. SVBUK has 3,500 customers and £7 billion of deposits, a substantial proportion of which were invested in government bonds.
On 13 March 2023, in consultation with the Prudential Regulation Authority, HM Treasury and Financial Conduct Authority, the Bank of England agreed to sell SVBUK to HSBC UK Bank Plc for £1 to protect UK deposits. In its statement published on 13 March 2023[1], the Bank of England confirmed that:
“No other UK banks are directly materially affected by these actions, or by the resolution of SVBUK’s US parent bank. The wider UK banking systems remains safe, sound, and well capitalised.”
Despite this vote of confidence from the Bank of England, it cannot be ignored that the collapse of SVB sent shock waves across UK’s technology sector. The events over the weekend are reminiscent of the 2008 financial crisis, begging the question of whether further regulatory changes are required to protect start-up technology, fintech and life sciences industries in the future. SVBUK has a unique hold over the UK technology sector as it offered loans to start-ups on the condition that they banked with them. SVBUK understood the requirements of technology start-ups, recognising that it could take years for these start-up companies to make a profit. As a result, these companies are entirely reliant on funds from investors which were locked in SVBUK’s bank accounts over the weekend. Had SVBUK been placed into an insolvency process on Sunday, thousands of the UK’s technology start-up companies would have potentially been facing insolvency themselves, with billions of pounds of investment and research never making it to market. This would have caused catastrophic long-term implications on the UK’s global position, as a leader in technological research and development.
Given HSBC’s ‘white knight’ acquisition of SVBUK, we have thankfully avoided a potential wide-ranging insolvency meltdown within the UK’s technology sector.
If you have any queries on the content of this article or any questions regarding the impact of SVBUK’s collapse or insolvency generally, please contact John Harvey by email on john.harvey@laytons.com.