Regulators race to save collapsed Silicon Valley Bank

The race is on to save parts of Silicon Valley Bank, which has collapsed unexpectedly.

It marks the biggest bank failure since the peak of the financial crisis 15 years ago. At the time of the collapse, SVB was the 16th largest bank in the United States with approximately $200 billion in assets.

In the UK, HSBC has this morning acquired the UK branch of the bank for £1. In 2022, SVB UK recorded a pre-tax profit of £88m. It had around £6.7 billion in customer deposits and £5.5 billion in loans.

Noel Quinn, CEO of HSBC Group, said: “This acquisition makes excellent strategic sense for our UK business. It strengthens our commercial banking franchise and enhances our ability to serve innovative and fast-growing firms, including in the technology and life sciences sectors, in UK and International.

“We welcome SVB UK’s customers to HSBC and look forward to helping them grow in the UK and around the world. SVB UK customers can continue to bank as usual, safe in the knowledge that their deposits are backed by the strength, safety and security of HSBC. We warmly welcome SVB UK colleagues to HSBC; we are excited to start working with them.”

UK Chancellor of the Exchequer Jeremy Hunt added: “This morning the Government and the Bank of England facilitated a private sale of Silicon Valley Bank UK to HSBC. Deposits will be protected, with no support from taxpayers. I said yesterday that we would take care of our technology sector and we have worked swiftly to deliver on that promise.”

In the US, regulators are scrambling to find potential buyers for SVB’s American operations, but Treasury Secretary Janet Yellen has ruled out a government-backed rescue package.

How did Silicon Valley Bank collapse?

SVB’s sudden demise has shocked markets, with regulators and authorities frantically seeking to protect customer deposits. At the time of its demise, the bank had operations in eight countries – including the US and Canada, the UK, China and India.

On Friday, SVB was closed by the California Department of Financial Protection & Innovation, with the Federal Deposit Insurance Corporation appointed as receiver, as is customary for a bank that is no longer solvent. The FDIC created the Deposit Insurance National Bank of Santa Clara (DINB) to facilitate the resolution of SVB.

SVB had created a “hole” in its finances by investing customer deposits in US government bonds, which would normally be considered safe bets. But rising interest rates had affected many of these investments. When customers began to withdraw their deposits, SVB was forced to sell the bonds at a loss. Only 48 hours passed from SVB publicly revealing that they had sold the assets, and the bank collapsed.

What was Silicon Valley Bank?

Silicon Valley Bank (SVB) was founded in 1983 and was headquartered in Santa Clara, California until it was deemed insolvent on March 10, 2023 and placed in receivership of the Federal Deposit Insurance Corporation (FDIC).

SVB was created to serve the banking needs of the rapidly growing technology community in Silicon Valley, and as such was extremely popular with technology companies. For this reason, it described itself as “the bank of the world’s most innovative companies”. At the time of its demise, it was the 16th largest bank in the United States and had about $200 billion in total assets.

According to LinkedIn, the bank employed over 7,000 people in at least eight different countries. It also regularly positioned itself as a champion of financial technology, publishing a quarterly State of the Markets update that purported to “highlight the latest trends and factors shaping the global innovation economy”.

What has been the reaction?

Carlo Capè, CEO of global technology consultancy BIP, responded by saying: “The collapse of SVB not only raises concerns about the stability of the global financial system, but also has implications for the European technology sector. The loss of a major player in the venture capital market could result in reduced funding opportunities and increased scrutiny of investment decisions, potentially stifling innovation and growth As the UK and European technology sector is a key driver of innovation and future growth across the continent in areas such as the metaverse, cleantech and AI, it is vital that we monitor the fallout from SVB and addressing funding challenges to ensure our tech companies can continue to trade and grow. News of a possible government funding package to help tech companies through this crisis is welcome.”

Nigel Green, chief executive of DeVere Group, says: “The authorities will get some stick, particularly from the shareholders of SVB investors. The asset value of the bank itself is zero and there is no chance of a government bailout for them. But … the Fed, the Treasury Department and regulators were forced to take action to break the doom loop that hit the banking sector. Failure to act must be dereliction of duty. If they had not given customers access to their deposits from Monday, it would have led to a loss of confidence in the banking system, leading to a “run on the banks” which in turn would have caused a liquidity crisis in the banking system. banking and a wider financial system, which could potentially trigger a full-fledged global financial crisis. The authorities could not let this happen.”

Green also says the collapse raises new questions about the Trump administration’s deregulation of banks and casts doubt on the Fed continuing with its plan for aggressive rate hikes.