UK and European lenders lose £30bn overnight as SVB ‘panic’ spreads

The fallout from the run on California’s Silicon Valley bank became international overnight, as British and European lenders saw nearly £30 billion wiped from their portfolios and the Bank of England stepped in to declare bankruptcy proceedings for SVB’s UK arm take over to protect the deposits of UK companies tied to the bank.

Since Friday, the Stoxx Europe 600 banking index, which includes leading UK lenders, has seen a mass sell-off amid the collapse of Silicon Valley Bank, the largest American bank failure since the 2008 financial crisis .8 per cent, taking €33.5bn (£29.6/$35.6bn) off their balance sheets.

Some of the UK’s largest banks saw their shares fall sharply, with HSBC down 4.6 per cent, Lloyds Banking Group down 3.3 per cent and shares in NatWest down 2.5 per cent. The London Times reports.

UK-based investors in SVB have reportedly already failed to withdraw their funds from the investment bank’s UK-based branch, sparking fears that tech start-ups could potentially go under if the government doesn’t step in to bail out the bank .

The UK tech startup lobby group said there was a sense of “panic” among its members, and Executive Director Dom Hallas said: “We know there are a large number of startups and investors in the ecosystem who play a significant role play commitment at SVB UK and will be very concerned.

“We have spoken to the UK Government, including Treasury and No 10, about the potential impact and I know policy options have been worked on overnight,” he added.

In response to the failure and the potential for contagion, the Bank of England – the U.S. Federal Reserve’s UK equivalent – announced in a late night statement on Friday night that it plans to use its bank default program to shut UK branch SVB into a resolution, which would allow depositors to receive up to £85,000 from the government’s deposit guarantee scheme in the coming days.

A trustee would then be tasked with the insolvency proceedings to split the UK’s remaining assets between its creditors and large depositors. According to a report by Financial Times, Financial advisory firm Interpath has been rumored as a potential candidate for the administrative process, but this has yet to be confirmed.

To quell the panic, the BoE said that “SVB UK has a limited presence in the UK and has no critical financial system support functions”.

The California Department of Financial Protection and Innovation had described SVB as “sound financials” prior to the bank run, with customers withdrawing approximately $42 billion, leaving the bank with a negative cash balance of $958 million had.

While the Federal Deposit Insurance Corporation (FDIC) in the United States has pledged that all insured deposits with the bank will be repaid, that may not be much consolation for many of the bank’s customers, considering that reportedly only seven percent of SVBs do so -Deposits are insured.

The failure of the 16th largest bank in the United States has already prompted calls for a federal bailout that would, once again, result in the average American sending their hard-earned taxpayer dollars to some of the nation’s wealthiest rather than allowing capitalism’s creative destruction of theirs run.

Former Democratic presidential nominee Andrew Yang said either the Treasury Department or the state of California should step in. fight: “Without any kind of action, you will see thousands of mass layoffs and defunct companies, an wiped out generation of start-ups, huge problems [California] in particular, and a widespread financial contagion that will infect at least a variety of regional banks.”

Alongside the risk of financial contagion, establishment figures both left and right have argued that bailouting the bank is necessary for national security to prevent its tech start-up clients from going bust and thereby the United States at a disadvantage are tech races against the likes of communist China.

However, there was some opposition to the idea of ​​bailing out the California-based bank, including from Congressman Matt Gaetz, who said, “If there’s an effort to use taxpayer money to bail out the Silicon Valley bank, the American people can leave.” Rest assured that I will be there to lead the fight against such a bailout,” adding, “Silicon Valley’s financial arm has just been severed before our eyes.”

Republicans pointed to the Biden administration’s disastrous economic policies and ensuing “Biden inflation” as triggers for the bank’s failure, while other conservatives noted that the Silicon Valley bank likely used ESG (environmental, social, governance , ESG) operations in its analyses, meaning the bank may have prioritized left-wing concerns rather than focusing on financial viability.

Follow Kurt Zindulka on Twitter here @KurtZindulka

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