The UK government is scrambling to secure an emergency deal to protect Britain’s tech and life sciences sectors from major losses after the collapse of Silicon Valley Bank (SVB), as financial markets braced for further volatility after the biggest bank failure since 2008.
The prime minister, Rishi Sunak, and the chancellor, Jeremy Hunt, signalled on Sunday that they were exploring a range of options, including an emergency fund that could provide a cash lifeline to support startups, as bidders put their hat in the ring for a potential takeover of the UK subsidiary.
Sunak on Sunday night sought to reassure British businesses, saying that “our overall financial system is sound and there’s nothing to worry about there”. He hinted an announcement was imminent, saying “we will have something to say very shortly”.
Soon after landing in San Diego, the prime minister told broadcasters he had been monitoring the situation during the 15-hour flight, speaking to the chancellor and keeping in touch with regulators including the Bank of England.
Sunak stressed he understood “the concern that people have got around what’s going on with SVB”.
He added he was focused on “finding the best solution” that would “continue to support our world-beating technology sector and all the high-skilled jobs that it supports”.
Hunt warned that fledgling businesses across the tech and life sciences sector were at “serious risk” if deposits were wiped out by the collapse of SVB UK.
It came as the US announced its own emergency support package to stem the fallout from the collapse of Silicon Valley Bank last week. SVB’s US customers will get access to all their cash on Monday, effectively scrapping the $250,000 cap on the deposit protection they were entitled to. Another US bank, New York-based Signature – one of the main banks for the crypto industry – is being wound up. Shareholders and some unsecured debt holders will be wiped out, and other banks will be forced to cover any shortfalls in the industry-funded scheme.
Regulators are also offering a $25bn emergency lending facility for other American banks, providing a backstop to lenders needing quick cash due to market instability.
Start-up lobby group Coadec said the US package set the bar for UK authorities, who were still locked in talks as of 11pm on Sunday evening.
“We will bring forward, very soon, plans to make sure people are able to meet their cashflow requirements and pay their staff, but obviously what we want to do is to find a longer term solution that minimises, or even avoids completely, losses to some of our most promising companies,” Hunt told Sky News.
The government has asked affected startups to disclose how much cash they had on deposit at SVB UK, as well as how much they tend to spend each month, and whether they had access to any other bank accounts other than the collapsed lender.
Coadec welcomed the government’s commitment to emergency support, saying it was “an acknowledgment of the scale of the challenge”, while investors indicated that they did not have a preference over the shape of the deal.
“I don’t believe the sector is particularly bothered by what a package looks like – either through a British Business Bank scheme or otherwise – and has confidence in policymakers to make the right decisions,” Eileen Burbidge, a partner at the venture capital firm Passion Capital and a former fintech envoy to the Treasury, said.
“Affected companies simply want access to their hard-earned capital from either revenue and/or investors, which they can access from a bank account in order to continue trading and servicing/supplying the UK economy – like they had on Thursday.”
Sunak did not rule out an emergency fund being set up to guarantee deposits. He said on Sunday the suggestion was “speculation” but added when asked about the possibility: “We’re working through it; the Treasury is in touch.”
Any widespread collapse of UK startups would be a blow to Hunt’s and Sunak’s ambitions to turn the UK into the “world’s next Silicon Valley”. The chancellor lauded the prospects of the sector’s growth during a speech in January.
The prospect of further fallout spurred the Treasury to hold an emergency meeting with UK tech industry representatives on Saturday evening, as more than 200 tech executives penned an open letter warning the chancellor that they were actively “running numbers to see if we are technically insolvent” as a result of SVB UK’s failure.
The letter explained that the tech sector was highly interconnected and that the loss of deposits had the potential to cripple the industry, with many businesses at risk of falling into insolvency overnight.
Silicon Valley Bank – which was the 16th largest lender in the US – collapsed and had its assets seized by US regulators on Friday after a tumultuous 48 hours. The lender had been trying to raise emergency funding to plug a near-$2bn (£1.7bn) hole in its finances, after an increase in withdrawals from customers in the tech industry who have seen funding dry up in recent months.
The Bank of England subsequently ordered its UK subsidiary into insolvency on Friday night, putting firms at risk of losing almost all their cash. Only £85,000 of clients’ deposits will be protected by the Financial Services Compensation Scheme, or £170,000 for joint accounts, meaning many of SVB UK’s 3,500 customers will be facing major losses without government intervention.
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