The UK arm of Silicon Valley Bank is set to be declared insolvent by the Bank of England after its US parent company failed in one of the biggest modern banking collapses.
Bank of England (BoE) regulators said the UK-based subsidary of the California-headquartered Silicon Valley Bank (SVB) will be put into insolvency on Sunday.
The move follows a decision by US regulators to step in and control its parent company.
The US bank, the 16th largest in the country with more than $208bn in assets at the start of the year, serves many of the world’s most powerful technology investors and thousands of tech companies around the world.
It collapsed on Friday becoming one of the largest lenders to fail since the 2008 global financial crisis.
US officials moved in to take over after what was effectively a run on the bank. Depositors rushed to withdraw their money amid fears SVB would not have sufficient funds to meet demands.
Its collapse has sent shockwaves across the banking and technology industries, hitting the shares of hundreds of thousands of banks and technology companies.
SVB UK attempted to reassure its customers not to panic as it had a separate balance sheet and was operating normally. In a statement, its chief executive Erin Platts, said: “Silicon Valley Bank UK has been an independent subsidiary since August 2022 with a separate balance sheet to the SVB Financial Group and an independent UK Board of directors.”
But hundreds of UK and European customers, many of them small technology start-ups, sought to get their money out of the UK bank regardless, according to emails seen by i.
Some requested customers not deposit money in their SVB accounts as they scrambled to set up accounts with alternative lenders. Other technology start-ups have sought help and advice on how to meet bills and pay staff.
In the US, a payroll service provider Rippling notified customers that some wage processes had stalled because SVB helped handle its payments. It said it had switched to another bank but many pay cheques drawing on SVB accounts had already been sent out.
It later emerged that SVB UK had applied for £1.8bn in short-term emergency funding from the Bank of England through the Bank’s discount window facility which offers help to banks if they have adequate collateral, the Financial Times reported.
Late on Friday, after discussions with SVB, the Bank of England announced it would be placing SVB UK into insolvency proceedings.
The Bank of England said Silicon Valley Bank UK would stop making payments or accepting deposits in the interim and the move would allow individual depositors to be paid up to £85,000 or £170,000 for joint account holders, from the UK’s deposit insurance scheme.
It stressed there was no wider, systemic risk to other banks. “SVBUK has a limited presence in the UK and no critical functions supporting the financial system,” the Bank said. “In the interim, the firm will stop making payments or accepting deposits,” its statement said.
US Treasury Secretary Janet Yellen also tried to reassure investors there was not a wider threat to the banking and technology sectors.
After meeting with Treasury officials and regulators to discuss the fallout from SVB’s collapse, a Treasury Department statement said: “Secretary Yellen expressed full confidence in banking regulators to take appropriate actions in response and noted that the banking system remains resilient and regulators have effective tools to address this type of event,” the statement said.
SVB, which had until recently more than $174bn in deposits and an A1 credit rating, began to struggle when lots of its clients began withdrawing money at a time when the wider tech sector began suffering as part of the wider economic downturn. Tens of thousands of tech workers have been laid off.
SVB said earlier this week, in order to meet its liabilities, it had to sell part of its bond deposits at a loss of $1.8bn. Its announcement startled clients and started to withdraw even more money from the bank. On Thursday customers tried to withdraw $42bn-almost a quarter of the bank’s total deposits. Queues of anxious customers were seen outside branches in California.
The bank’s share price fell by 60 per cent as a result. Trading in its shares were stopped altogether on Friday ahead of US regulators stepping in. Its directors said it was dropping a plan to sell $2.25bn new shares and instead find a buyer for the entire bank before regulators stepped in.
It was revealed that SVB’s chief executive Greg Becker legally sold $3.6m worth of bank shares less than two weeks before the firm disclosed extensive losses that led to its failure.
Neither SVB, nor Mr Becker, responded to requests as to whether he was aware of the bank’s plans to raise additional capital ahead of the sale.