Silicon Valley Bank’s UK arm is on the brink of bankruptcy by the Bank of England after its US parent company collapsed in one of the biggest bank failures of modern times.
Bank of England (BoE) regulators said the California-headquartered UK subsidiary of Silicon Valley Bank (SVB) will file for bankruptcy on Sunday.
The move follows a decision by US regulators to step in and control the parent company.
The US bank, the 16th largest in the nation with over $208 billion in assets as of the beginning of the year, serves many of the world’s most powerful tech investors and thousands of tech companies around the world.
It collapsed on Friday, becoming one of the biggest lenders to collapse since the 2008 global financial crisis.
U.S. officials took over after running on the bench. Depositors rushed to withdraw their money, fearing that the SVB would not have enough funds to meet the requirements.
The crash sent shockwaves across the banking and technology sectors, hitting the stocks of hundreds of thousands of banks and technology companies.
SVB UK tried to reassure their customers not to panic as they had a separate balance sheet and were operating as normal. A statement from CEO Erin Platts said: “Since August 2022, Silicon Valley Bank UK has been an independent subsidiary with a separate balance sheet for the SVB financial group and an independent board of directors in the UK.”
But hundreds of British and European clients, many of them small tech start-ups, were still trying to get their money out of the UK bank, according to the emails. I.
Some asked clients not to fund their SVB accounts as they rushed to open accounts with alternative lenders. Other tech startups have reached out for help and advice on how to pay bills and pay staff.
In the US, payroll service provider Rippling told customers that some payroll processes were stalled due to SVB helping process payments. He moved to another bank, but many paychecks had already been sent from SVB accounts.
It later emerged that SVB UK had requested £1.8bn of short-term emergency funding from the Bank of England through the bank’s rebate scheme, which helps banks if they have sufficient collateral, according to the Financial Times.
On Friday evening, after negotiations with SVB, the Bank of England announced that it would involve SVB UK in bankruptcy proceedings.
The Bank of England said Silicon Valley Bank UK will no longer make payments or accept deposits at the same time and that the move will allow individual savers to receive up to £85,000 or £170,000 for joint account holders from the UK’s deposit guarantee scheme.
He emphasized that there is no greater systemic risk for other banks. “SVBUK has a limited presence in the UK and lacks critical functions that support the financial system,” the bank said. “At the same time, the company will no longer make payments and accept deposits,” the statement said.
US Treasury Secretary Janet Yellen also tried to reassure investors that there is no serious threat to the banking and technology sectors.
Following a meeting with Treasury Department officials and regulators to discuss the implications of the collapse of the SVB, the Treasury Department said in a statement: have effective tools to deal with these types of events,” the statement said.
SVB, which until recently had over $174 billion in deposits and an A1 rating, has begun to struggle as many of its clients have begun withdrawing funds at a time when the broader tech sector has been gaining momentum amid a broader economic downturn. Tens of thousands of technicians were fired.
Earlier this week, SVB said it had to sell some of its bond holdings in order to meet its obligations, at a loss of $1.8 billion. The announcement scared the customers and they started withdrawing even more money from the bank. On Thursday, clients attempted to withdraw $42 billion, nearly a quarter of the bank’s total deposits. Lines of excited shoppers lined up outside stores in California.
As a result, the bank’s share price fell by 60 percent. Trading in its shares was completely halted on Friday before US regulators intervened. The directors said they abandoned a plan to sell $2.25 billion worth of new shares and instead find a buyer for the entire bank before regulators intervene.
It has been revealed that SVB CEO Greg Becker legally sold $3.6 million worth of bank shares less than two weeks before he announced the massive losses that led to his bankruptcy.
Neither SVB nor Mr. Becker commented on whether he was aware of the bank’s plans to raise additional capital prior to the sale.
Source: I News
I am Moises Cosgrove and I work for a news website as an author. I specialize in the market section, writing stories about the latest developments in the world of finance and economics. My articles are read by people from all walks of life, from investors to analysts, to everyday citizens looking for insight into how news will affect their finances.