Markets calmed down on Monday morning after it was announced that HSBC UK would buy the UK arm of Silicon Valley Bank (SVB) to stave off bankruptcy.

The Bank of England said on Friday it was seeking an injunction against bringing the bank into bankruptcy just hours after US regulators took control of the parent company.

The collapse of SVB is the largest collapse of a US bank since the 2008 financial crisis and the second largest bank failure in US history.

The Bank of England and the US Treasury tried to reassure investors that the crash was not a major threat to the banking and technology sectors.

Why did the Silicon Valley bank collapse?

Founded in 1983, SVB has long been popular with investors and entrepreneurs in the technology sector. It was claimed in 2015 that it serves 65 percent of all US startups.

In recent years, the bank has invested most of its capital in US Treasury bonds, many of which were backed by mortgages, which fell in value when the US Federal Reserve raised interest rates.

Economic conditions have also hit the bank’s customers, many of whom are struggling to cope with massive layoffs in the post-boom industry during the pandemic.

While companies struggled, many began withdrawing their funds deposited with SVB, leaving the bank with limited capital to meet its obligations.

On March 8, SVB announced that it needed to raise $2.25 billion to balance the books after it was forced to sell many of its government bonds at a $1.8 billion loss to pay off its debt to raise capital.

The move caused panic among investors who tried to withdraw $42 billion on March 9 alone, nearly a quarter of the bank’s deposits.

This resulted in a 60 percent drop in SVB’s share price and a trading halt on March 10 when US regulators stepped in to take control of the bank and its assets.

Hours later, the Bank of England intervened and suspended operations at SVB UK, the US bank’s UK subsidiary, prompting warnings that it could become insolvent.

Financial Times reported that SVB UK has requested £1.8bn of liquidity from the central bank, which can provide emergency funding to the bank through its rebate system if it has sufficient collateral.

Client deposits in the UK and US were protected by their respective countries’ regulators, meaning they could access their funds on Monday. However, shareholders and unsecured creditors are not protected.

What implications could the shutdown have for British industry?

There were fears that the collapse of SVB UK could result in many UK startups going bankrupt as they were unable to pay salaries and other necessary expenses.

So said the expert of the high-tech industry BBC that 30 to 40 per cent of UK start-ups with under 50,000 employees could be hit by a collapse.

Chancellor Jeremy Hunt warned over the weekend that a bank failure “could have a significant impact on the liquidity of the tech ecosystem,” while Science and Technology Secretary Michelle Donelan said the government would “do everything possible” to mitigate its impact to the breaking point.

“We understand that cash flow in the technology sector is often not positive as it grows and I am committed to supporting it as we do our best to minimize the impact on the industry,” she tweeted on Saturday.

If insolvency proceedings were initiated at SVB UK, eligible depositors would be protected up to £85,000 of their own money or up to £170,000 in joint accounts.

This could have had dire consequences for the tech companies that had invested millions in the bank, likely leading to the closure of dozens of startups.

What does the HSBC bailout mean for Silicon Valley Bank UK?

The purchase of HSBC SVB UK for just £1 comes after a series of negotiations with the Bank of England, the Prudential Regulatory Authority, the Treasury and the Financial Conduct Authority.

The takeover means that SVB UK will not face bankruptcy proceedings and HSBC has assured its new customers that all their previous deposits are protected.

Bank and GMT [the Treasury] can confirm that all depositors’ money is safe with SVB UK as a result of this transaction,” the Bank of England said in a statement.

“SVB UK activities will continue to be carried out by SVB UK as usual. All services will continue to operate as normal and customers should not notice any changes.”

In a statement, Chancellor Jeremy Hunt said: “The UK tech sector is truly a global leader and is of the utmost importance to the UK economy, supporting hundreds of thousands of jobs.

“I said yesterday that we will look after our tech sector and we have been working urgently to deliver on that promise and find a solution that will instill confidence in SVB’s UK customers.”

Could other big banks collapse as well?

Immediate concerns about the collapse of the SVB were allayed by a quick response from UK and US regulators, with the US government guaranteeing all deposits at the bank.

Last week, the Bank of England tried to calm the industry by saying that SVB UK has a “limited footprint” in the economy and “no critical functions supporting the financial system”.

US Treasury Secretary Janet Yellen also tried to reassure investors on Friday, saying there was no major threat to the banking and technology sectors.

The U.S. Treasury Department said in a statement: “Secretary Yellen expressed her full confidence that banking regulators will take appropriate action, noting that the banking system remains resilient and that regulators have effective tools to deal with these kinds of… events.

The Federal Reserve also announced a new system that would allow banks to borrow money backed by government bonds to help them meet customer demand for their deposits.

This would have prevented the capital depletion of other US banks such as SVB, leading to their eventual collapse.

While SVB and its clients are now largely protected, there are more pressing concerns for the wider tech sector, which has now lost one of its biggest supporters.