- BOE places the UK arm of the troubled Silicon Valley Bank under insolvency.
- The heads of 130 technology companies in the UK believe lender’s bankruptcy represents an existential threat to the UK tech sector.
The UK is racing ahead of the clock to salvage the British arm of the collapsed Silicon Valley Bank after it sent jitters through the startup scene of the country.
Investors are calling on the government to pull them out of distress as they have significant exposure to the troubled bank.
It should be noted here that SVB restructured its UK branch into a separate bank subsidiary in August last year following the branch reaching £100 million of insured small business deposits, SVB’s 2022 annual report showed. This put the bank directly under the jurisdiction of UK regulators.
The BOE makes its move
Well, in the wake of recent developments, The Bank of England (BOE) said it would place the UK subsidiary into insolvency. “SVBUK has a limited presence in the UK and no critical functions supporting the financial system,” the central bank said in a statement.
Following the insolvency procedure, SVB UK will stop making payments or accepting deposits.
Meanwhile, the UK finance ministry and BOE are working together to contain the chaos following SVB’s collapse. Interestingly, the government is coordinating an emergency meeting with tech firms.
City minister Andrew Griffith was also set to meet with industry representatives on Saturday afternoon, according to UK media outlet The Guardian. UK Treasury said in a statement cited by Guardian:
“The government recognises that tech sector companies are often not cash flow positive as they grow, and that they rely on cash on deposits to cover their day to day costs.”
CEOs condemn the BOE assessment
On the other hand, the heads of 130 technology companies wrote a letter to UK Chancellor Jeremy Hunt asking for government intervention.
The CEOs criticized BOE’s assessment of the limited impact of SVB on the UK economy and added that it displays a dangerous lack of understanding of the sector and the role it plays in the wider economy.
“The recent news about SVB going into insolvency represents an existential threat to the UK tech sector,” they wrote.
This view was upheld by The Coalition for a Digital Economy (Coadec), a nonprofit that campaigns for policies to support digital startups in the UK. Coadec stated that there are a large number of startups and investors in the ecosystem who have significant exposure to SVB UK.
In another interesting development, Sky News reported that The Bank of London is considering a bid for SVB UK. However, the report also added that it was unclear of the credibility of the offer.
What needs to be seen now is whether the government would be able to buffer the ramifications of SVB and stop the involuntary liquidation of affected companies.
The response from Britain could be mirrored across the globe as SVB has branches in various countries including China, India, Denmark, Canada, and Sweden.
Finally, how the UK handles the fallout will be watched by the world as the repercussions spread to other countries.
