The UK government is drawing up plans for an emergency cash lifeline for tech firms hit by the collapse of Silicon Valley Bank UK (SVB UK), as the chancellor warned the sector was at “serious risk”.
Jeremy Hunt said the issue was a “high priority” for the government, and that he had been locked in late-night meetings with the prime minister, Rishi Sunak, and the Bank of England governor, Andrew Bailey, in an attempt to avoid further fallout from the collapse of SVB UK’s American parent company on Friday. It marked the largest failure of a bank since the 2008 financial crisis.
“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, reiterating a statement released by the Treasury on Sunday morning.
While he insisted there was no systemic risk to the UK financial system, the chancellor said: “There is a serious risk to our technology and life sciences sectors, many of whom bank with this bank that most people won’t have heard of – the Silicon Valley Bank – but it happens to look after the money of some of our most promising and exciting businesses.”
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 burn through each month, and whether they had access to any other bank accounts outside the collapsed lender.
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.”
Speaking to journalists on his way to California for a meeting with the leaders of Australia and the US, the prime minister stressed he did not think there was a “systemic risk” in the UK caused by SVB’s collapse.
In an attempt to reassure tech firms, he said government officials were “working through it over the weekend and are making sure there is a solution that provides operational liquidity for people’s cashflow needs”.
Sunak acknowledged the “anxiety and the concerns” among customers of SVB UK, and when quizzed on whether a solution would be in place by the time the markets opened on Monday morning, stressed the Treasury was working “at pace”.
The prime minister also threw his weight behind the Bank of England governor. Asked if he was satisfied Bailey was overseeing a robust regulatory environment for UK banks, Sunak said: “Yes.”
The US Treasury secretary, Janet Yellen, said on Sunday she was working closely with banking regulators to respond to the collapse of Silicon Valley Bank and protect depositors but that a major bailout was not being considered.
“Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out … and the reforms that have been put in place means we are not going to do that again,” Yellen told the CBS News show Face the Nation.
“But we are concerned about depositors and are focused on trying to meet their needs. We certainly are working to address the situation in a timely way.”
Hunt’s pledge to find an emergency cash lifeline was welcomed by tech firms and lobby groups, including the startup industry body Codec, which said it was “an acknowledgment of the scale of the challenge. We will continue to work with them today on a solution and update further in the coming hours.”
Representatives from across the tech and finance industry are hoping the Treasury will consider a rescue package that will involve either reviving SVB UK through a state bailout or private takeover, or offering specialised loans for startups who say they are at risk of going bust if they lose their deposits at the bank.
Hunt hopes the UK can become the “world’s next Silicon Valley”. However, an open letter signed by almost 200 tech executives this weekend warned 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 also explained that the tech sector was highly interconnected and that the loss of deposits had the potential to cripple the industry, with many business 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.
Sky News reported on Sunday that Britain’s biggest high street banks have been given a 24-hour deadline to rescue SVB UK from collapse, as the Bank of England prepared to place it into an insolvency process.
Lenders including Barclays and Lloyds Banking Group are among the parties to have been approached by the board of SVB UK over the weekend to see if an emergency takeover deal can be reached, Sky said.
While analysts say there is little chance of contagion across the banking sector – given that the biggest banks serve a wider range of customers and have plenty of capital – tech startups and investors are worried about the ripple effects for the sector.
The shadow chancellor, Rachel Reeves, also called for immediate action from the government to protect the UK’s startup sector, “which drives growth and innovation across the economy”.
She said: “The chancellor must act urgently to understand the exposure of UK firms to the bank, and take action to prevent large-scale damage being done to this crucial sector of the British economy.”
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