Rishi Sunak tried to reassure investors that UK banks are safe and well funded after more than £50bn.
Speaking in the US ahead of the announcement of a defense deal with the US and Australia, the prime minister stressed that there were no systemic risk issues since the collapse of Silicon Valley Bank (SVB).
“Our banks are well capitalized, liquidity is strong,” Sunak said. “I think the governor of the Bank of England was right and the chancellor was right to bring this up and make it clear that our banks are really well capitalized and not worried about systemic risk.”
His words were followed by assurances from the Bank of England, which said that no other British bank was “materially affected” by the collapse of the SVB. Chancellor Jeremy Hunt also stressed that bailing out US technology-focused bank SVB does not pose a “systemic risk” to the UK’s financial stability.
US President Joe Biden also reassured investors, saying “Americans can have confidence in the safety of the banking system” and vowed to push for tighter regulation of banks.
Official confidence was not shared by investors, who remained cautious, and banks were hit hard by falling stocks.
“Despite all the efforts of governments and regulators, the market was still very tight as investors considered the impact of the SVB collapse. Whether it is the Ukrainian conflict, inflation, rising interest rates or a possible banking crisis, there is something to fear. It’s no wonder people are a little scared,” said Russ Mold of investment firm AJ Bell.
Suzanne Streeter of Hargreaves Lansdown warned that the nervousness surrounding the banking crisis would continue. “The president’s admission that new rules may be needed to stop further disruptions exposes the shortcomings of the current system, and lawmakers are now being urged to tighten the rules.
“So while the crash is concentrated in a small, technocentric corner of the financial system, the effects threaten to spread,” she said.
British tech companies have welcomed HSBC’s bailout after warning that about a third of the country’s tech sector could be lost if the bank collapses.
HSBC boss Noel Quinn has put SVB customers in the UK at ease after he bought his UK branch for £1. “SVB UK customers can continue to work at the bank knowing that their deposits are protected by the power and safety of HSBS.
The Federal Reserve said it would conduct an oversight and regulatory review of Silicon Valley Bank. Federal Reserve Chairman Jerome Powell said in a statement that the bank’s insolvency required “thorough, transparent and prompt consideration.”
President Biden said he is confident that US financial regulators have the tools they need to deal with bank failures and monitor banks, and he is confident in the steps taken so far.
US National Security Adviser Jake Sullivan said President Biden will discuss the measures with British Prime Minister Rishi Sunak when the two leaders meet in California.