UK tech firms were relieved when HSBC bought the UK branch of the defunct US Silicon Valley Bank (SVB).
Customers and businesses who were previously unable to withdraw their funds can now do so as usual.
The government and Bank of England led the talks and worked through the night to reach a taxpayer-free agreement.
HSBC stated that it paid £1 for the UK subsidiary of SVB.
Silicon Valley Bank, a technology lender, was closed by US regulators on Friday in the biggest bank failure since 2008.
Its demise sent shockwaves throughout the technology industry regarding the potential impact it could have on businesses.
Concerned about how firms would access currency on Monday morning, Chancellor Jeremy Hunt, the prime minister, the Bank of England governor, HSBC executives, and civil servants held frantic discussions to find a solution.
The Bank of England stated that no other UK banks were “substantially affected” by SVB’s failure. And that the financial system remained “safe, sound, and well-capitalized.”
Even though the UK division of SVB had fewer than 3,000 business clients. Its failure threatened a government-identified key area for UK economic success.
Mr. Hunt stated that some of the companies only had bank accounts with SVB UK, stating, “therefore, we faced a situation in which some of our most important and strategic companies could have been wiped out, which would have been extremely dangerous.”
However, he added that “there was never a systemic threat to the UK’s financial stability.”
Toby Mather, CEO and co-founder of Lingumi, an education technology startup, stated that 85 percent of the company’s currency was held by the bank and he had an “anxious weekend.”
Mr. Mather stated, “We had sufficient funds in bank accounts outside the United Kingdom and sufficient weekly revenue from our customers to be able to look our staff in the eyes this morning at nine o’clock and say we can make payroll in two weeks, but it would have been very uncertain after that.”
After several “unbelievably stressful” days, Sebastian Weidt, the CEO of Universal Quantum. A 40-person technology company whose funds were held by SVB, described the transaction as a “huge relief.”
Silicon Valley Bank UK was financially stable when HSBC bought it for £1 despite its parent company’s problems.
It was adequately capitalized and profiting adequately. Sources from the Bank of England confirmed that this weekend’s intervention was more of a preventative strike. Before the collapse of its US parent company triggered widespread withdrawals from the UK business.
Regulators were confident that Europe’s largest bank could easily absorb any risk posed by SVB UK’s customers. As a result, HSBC received an incredible deal, which it owed to its scale and strength.
It appears that SVB UK’s only flaw was its name. The SVB US collapse showed that many banks are riskier than they look on paper. As interest rates rose, their government bond assets lost value.
The realization of this fact by apprehensive investors is one reason why bank stocks fell again on Monday.
Why did the Silicon Valley Bank fail?
The rescue agreement for the UK branch of the bank comes after the US agreed to a rescue agreement for the US bank’s customers in which all depositors are entirely protected.
SVB specialized in lending to start-ups, and it served nearly half of the venture-backed US technology and healthcare companies that went public last year.
Higher interest rates made it more difficult for the company’s customers to raise funds through private fundraising or share sales, putting the company under duress. The number of customers withdrawing deposits increased exponentially over the past week.
Friday, the bank failed in the United States due to its inability to obtain sufficient funds to cover losses from the sale of assets, primarily US government bonds, impacted by higher interest rates.
Over 200 tech executives signed a letter asking the government to intercede due to SVB’s UK subsidiary’s ripple effects.
Sir Philip Augar, a former investment banker, stated that the UK government and regulators had a “good weekend in avoiding a crisis,” but he cautioned that the collapse of SVB occurred just as the government was contemplating “loosening” regulations in the financial services industry.
“It shows that it is a dangerous industry that can harm the entire economy if not properly regulated,” he said.
“It is capable of delivering a painful shock.”
HSBC’s agreement was well-received, but the UK’s clearance bank, the Bank of London, called it a “missed opportunity.
The bank, which was among the companies that submitted a rescue offer for SVB UK, stated, “It cannot be right that, once again, the heritage banks that have provided poor service to UK entrepreneurs for many years should benefit from their already dominant position.”
