Chancellor tries to calm bank crash fears
Jeremy Hunt said Treasury would do all it could to protect British startups caught in US bank collapse
RISHI SUNAK and Jeremy Hunt tried to allay fears of a new financial crisis last night after British startups were left on the brink from the largest bank collapse since 2008.
The Prime Minister told reporters on a flight to the United States that there was no “systemic contagion risk” after the collapse of Silicon Valley Bank (SVB).
The Chancellor said earlier yesterday that the Treasury was working to find a solution for clients of its UK branch that either avoids or “minimises” losses to companies caught up in the chaos.
Warnings from the tech sector of mass collapses without adequate intervention were expected to hit jittery financial markets hard this morning.
More than 200 tech bosses wrote to Mr Hunt at the weekend warning that they face an “existential threat” as they would be unable to stay afloat and pay staff without intervention.
The Chancellor insisted the Government would do “everything we can” to protect them. Mr Hunt, speaking to BBC One’s Sunday with Laura Kuenssberg, said: “The Governor of the Bank of England has said that there is not a systemic risk to the financial system.”
Officials had been scrambling to find a buyer before SVB UK would be placed into insolvency procedures at midnight by the Bank of England. Several banks were in talks about a potential takeover, including Oaknorth Bank and the Bank of London. The latter confirmed last night that it had submitted a formal proposal for the bank on behalf of a consortium of private equity firms.
Observers said an immediate takeover would ensure the least fallout for customers who should be able to access their funds again within days. There was no news of a successful deal late last night when this paper went to print.
Mr Hunt, who has previously aired ambitions about London becoming the next Silicon Valley, also yesterday said he was looking for ways to extend a temporary cash lifeline to firms.
The Government would ensure “the short-term operational and cashflow needs of Silicon Valley Bank UK customers are able to be met,” he said.
Without a buyer stepping in before the start of the insolvency process, firms face a much longer wait to get their money back.
SVB UK has 3,300 customers in Britain. It had nearly £7bn in deposits when it was deemed insolvent, according to the Financial Times.
The Financial Services Compensation Scheme guarantees deposits below £85,000 are returned within seven days, while larger amounts risk getting tied up in a lengthy process. “It could take years, certainly months,” said Jeremy Whiteson, partner in Fladgate’s Restructuring and Insolvency practice.
Experts believe there is little chance of similar scenarios playing out at other UK banks, but there are still significant risks. “If this does get drawn out in the US and there are businesses who fail because of it – that’s when the risk of contagion is high,” said Varun Paul, a former head of the Bank of England’s Fintech Hub who now works for fintech firm Fireblocks.
If the authorities fail to come up with a solution there could be “contagion via the real economy, as well as through confidence in how the system works,” he added. People could start withdrawing funds from smaller banks and park them in one of the big banks. So you could have small banks suffering as a result of that, losing their otherwise stable deposits.”
According to Mr Paul, the cost to UK taxpayers should be relatively limited in the first instance, as SVB UK should have the vast majority of the funds.
“There doesn’t appear to be a big hole in the funding of the bank so the cost should only be the temporary nature of providing that credit.”
The fallout from SVB UK’S troubles is hitting large parts of the tech sector, warned Check Warner, co-founder and partner of Ada Ventures, a venture capital fund. “It will be affecting anywhere from 30 to 50pc of all UK tech companies who either have all their funds, or some of their funds there,” she said.
“It causes huge questions for what institutions are safe, frankly, and how we can actually operate and do business in this country. Are we supposed to put cash under the sofa?”
Ms Warner also raised concerns that a temporary emergency cash lifeline from the Treasury would only delay the inevitable for many companies if no long-term solution is found. The industry has been in close talks with the Government over the weekend.
The US government has announced all depositors will have access to their money beyond the federally insured maximum of $250,000 from today. The Federal Reserve also said it was creating a lending facility for other banks to minimise the risk from SVB’S collapse. A joint statement from the Treasury, the Fed and the Federal Deposit Insurance Corporation said: “This step will ensure that the US banking system continues to perform its vital roles of protecting deposits and providing access to credit to households and businesses in a manner that promotes strong and sustainable economic growth.”
‘Experts believe there is little chance of similar scenarios playing out at other UK banks’