Silicon Valley Bank (SVB) was shut down by regulators on Friday in the biggest bank collapse since the 2008 financial crisis. The bank – which specialised in lending to tech companies – is the 16th biggest in the USA but was far from a household name due to its niche product.

It was established in 1983, at a poker game where its founders discussed this gap in the market, according to the Times, and presented itself as a one stop shop for the sector.

It went on to become a substantial edifice in the banking world, handling the finances of half of America’s start-ups. Yet on Friday it was put in to receivership after unwise investments led to an incredibly swift run on the bank. The day before, its tech clients had tried to withdraw $42 billion dollars, a fifth of its value.

The US agreed a rescue deal for the beleaguered bank yesterday, which saw all customer deposits protected. The UK arm of the bank has been bought by HSBC after the government and the Bank of England worked through the night to come up with a rescue deal.

Considering many people hadn’t heard of SVB until its collapse, you may be wondering why it’s important. We explain below.

So how did it all go so wrong?

When SVB’s assets tripled, as its clients reaped the benefits of the pandemic investment boom between 2019 and early 2022, it invested heavily in long-term US government bonds.

This was not, in itself, an inherently risky move – government bonds are traditionally amongst the safest investment options and most banks have them as part of their savings portfolio. But SVB was caught out by rapidly rising interest rates (the value of a bond goes down when interest rates rise) which coincided with the tech recession.

As companies were laying off staff and experiencing a fall in financial backers, they began to withdraw money to pay the bills. This led SVB to start to sell off its bonds to cover the shortfall, only to find they’d made a big loss on them. This combination created a perfect storm. As soon as word got out, people tried to drain their accounts, creating a run on the bank. The US state regulator stepped in on Friday when they realised lots of other banks could be impacted.

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It’s a US bank failure, so why does it affect me?

In short, the UK tech sector is dependent on the bank too. SVB UK has 3,000 British clients and over the weekend 200 tech entrepreneurs and venture capitalists employing more than 10,000 people wrote to the Chancellor Jeremy Hunt.

They warned that their businesses would go bust if they could not get at their funds in the bank, prompting fears of thousands of job losses and a risk that staff wages would go unpaid if their accounts remained frozen.

Companies including the jobs site Adzuna, Founders Factory and cryptocurrency analytics company Elliptic said there was an “existential threat to the UK tech sector”.

Their letter said: “The impact the loss of deposits would have would cripple the sector and set the ecosystem back 20 years. Many businesses will be sent into involuntary liquidation overnight.”

What has been the impact in the UK?

The UK arm of SVB started as a subsidiary in 2012. Legally the two banks are separate -even though they have the same management and same parent company – which enabled the Bank of England to step in on Friday.

Although the government had come up a rescue deal well before the markets opened today, shockwaves were still felt, with bank shares falling by around 4 per cent this morning.

It’s perhaps no surprise that the government acted quickly – they would have been keen to minimise the impact on the tech sector – seen as a growth area for the UK, somewhere the government want to drive the economy, make money and create jobs.

Hunt has talked about establishing London as an UK equivalent to Silicon Valley. Whether his swift action is enough to make people less nervous about invest in the sector only time will tell.

The rescue package which saw HSBC buy the bank for £1 means UK customers will be able to access their deposits and banking services as normal from today.

In a statement Chancellor Jeremy Hunt said: “The UK’s tech sector is genuinely world-leading and of huge importance to the British economy, supporting hundreds of thousands of jobs. I said yesterday that we would look after our tech sector, and we have worked urgently to deliver on that promise and find a solution that will provide SVB UK’s customers with confidence.

“Today the government and the Bank of England have facilitated a private sale of Silicon Valley Bank UK; this ensures customer deposits are protected and can bank as normal, with no taxpayer support. I am pleased we have reached a resolution in such short order.”

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