The UK government is coordinating an emergency meeting with tech companies who are expected to call for government intervention to avoid the collapse of hundreds of businesses in the wake of the Silicon Valley Bank UK (SVB UK) collapse.
Chancellor Jeremy Hunt also spoke with Bank of England Governor Andrew Bailey on Saturday morning, just hours after the collapse of SVB UK’s parent company in what was the biggest bank failure since the 2008 financial crisis.
Town Secretary Andrew Griffith was also due to meet with industry officials on Saturday afternoon to “discuss the situation and the concerns they are facing”, although some tech leaders are expected to call for government intervention amid fears that nearly all of their deposits will be lost doing so will be wiped out.
“The government recognizes that companies in the technology sector often do not have positive cash flows during their growth and that they rely on cash deposits to cover their day-to-day expenses,” the Treasury Department said in a statement.
Silicon Valley Bank – the 16th largest lender in the US – collapsed and its assets were seized by US regulators on Friday after a turbulent 48 hours. The lender has tried to raise emergency funding to plug a hole in its nearly $2bn (£1.7bn) finances after withdrawals from customers in the tech sector, who have seen funding dry up in recent months was, had risen sharply.
While the likelihood of contagion across the banking sector is low – as the largest banks serve a wider range of customers and have plenty of capital – tech start-ups and investors are concerned about the impact on the sector.
An open letter signed by nearly 200 technology leaders is now being drafted to the Chancellor, who is urging greater investment and hoping the UK will be the ‘world’s next Silicon Valley’. A version of the draft letter seen by the Guardian warned that the majority of signers this weekend were “running numbers to see if we are technically insolvent” after losing deposits at SVB UK.
It was explained that the tech sector is highly interconnected and the loss of deposits could cripple the sector as many companies risk going bankrupt overnight.
The Bank of England’s decision to declare the failed US lender’s subsidiary bankrupt on Friday night is understood to overrule any requests to withdraw or transfer funds to other banks – even if filed at the time, but were not executed, authorities intervened.
It means most of the lender’s 3,500 customers will see the bulk of their deposits at SVB UK wiped out, despite UK chief executive Erin Platts promising on a Zoom call on Friday afternoon that the bank would continue to operate as usual next week.
Attendees urged Platts to request transfers, saying amid the panic, many customers were still waiting for their funds to be withdrawn from their SVB UK accounts. Platts said those transfers are still being processed, but stressed that there is an enormous volume of requests to be processed.
That backlog had built up quickly as SVB UK’s 750 staff struggled to keep up as panic over the parent company’s health swept global markets.
The growing panic also forced Platts to issue a public statement, assuring customers that SVB UK’s operations were “shielded” from the US parent company and that deposits up to £85,000 were protected under the Financial Services Compensation Scheme.
But at 11.45pm on Friday night, the Bank of England released a statement confirming it would send SVB UK into bankruptcy. It said customers would receive up to £85,000 through the compensation scheme as soon as possible, while SVB UK creditors would receive any cash gained from a liquidation of the other assets.
The Bank of England tried to reassure markets and said the impact of the SVB closure was minimal. “SVB UK has a limited presence in the UK and no critical functions supporting the financial system.”
Reports also surfaced on Saturday that junior lender Bank of London was considering a bid for SVB UK’s operations. However, regulators are understood to still plan to proceed with liquidation plans rather than courting potential buyers.
The Bank of England and SVB UK declined to comment.