Rishi Sunak, who pledged today to find a solution for hundreds of UK tech companies that are going out of business due to the collapse of Silicon Valley Bank, said today that there is no “systemic” threat to the UK’s financial sector.
After a US bank ran, the Bank of England declared the UK arm of SVB insolvent. The US bank had lent thousands of tech companies including Shopify and Pinterest.
SVB UK employs approximately 650 people in London. It is estimated to have “several thousands” of business customers, many of them tech start-ups who rely on their deposits for staff and suppliers.
Roku, the video streaming company, announced Friday that it had almost $450 million in cash in SVB uninsured deposits.
Ministers are concerned that many of these firms may be forced to bankruptcy without a bailout, which could cause serious damage to UK’s tech sector.
Jeremy Hunt, the chancellor, met with Sunak last night to discuss the crisis and is currently in discussions with financial regulators and the Bank of England about a rescue package.
Sunak, when asked about the risk to other financial institutions said that the government didn’t believe there was any “systemic contagion” threat.
He said, “We are working to recognize the anxiety and concerns customers have about the bank and to make sure we can work with them to find a solution that protects people’s cash-flow and operational liquidity.”
Sunak responded to a question about whether the Treasury would have a solution ready by Monday morning’s market opening. It is something I am aware that the chancellor has been discussing this morning in detail.
He said, “Rest assured that they are working through it over weekend and are making certain there is an operational liquidity solution for people’s money flow needs.”
Although the Bank of England said that SVB UK wasn’t an essential part of the financial system the Bank of England warned entrepreneurs that they would lose their business if they couldn’t access their bank accounts. This led to fears of thousands of job loss. If their accounts are frozen, many bosses won’t be able pay their employees this week.
This would be a setback to the ambitions of the chancellor, Jeremy Hunt, to make the UK a “technology superpower”. It also comes at a poor time, as Hunt’s budget is due Wednesday.
Hunt made a statement on Sunday morning acknowledging the seriousness of the situation. He said that the Bank of England and the government “understand the level of worry” that SVB UK’s collapse “raises for our customers. . . How it could impact cashflow positions in short-term.”
The statement said that the government recognizes the importance of Silicon Valley Bank for its customers and its potential impact on the liquidity of tech ecosystem.
The statement described the situation as a “high-priority” and added that the government was working fast to find a solution to prevent or minimize damage to some of the promising UK companies. We will also present immediate plans to meet the short-term cash flow and operational needs of SVB UK customers.
The crisis could however spread. SVB had branches throughout China, India and Germany. The Chinese arm of SVB, a joint venture with Beijing was designed to reassure clients about the stability of its operations.
Hunt updated his status after meeting Andrew Bailey, the Bank governor, on Saturday to discuss SVB UK. Andrew Griffith, the City minister was also talking to industry leaders about a solution. According to reports, Bank of London is considering a rescue bid.
Bank customers who have deposits up to PS85,000 will be protected by the Bank’s insolvency proceedings. However, many businesses still keep millions of pounds in these accounts.
Customers will receive payments by cheque within seven days. However, tech start-ups won’t be able to survive if the funds are not available.
Hunt was contacted by 200 venture capitalists and tech entrepreneurs employing over 10,000 people. They warned Hunt that they needed urgent help or they would go bankrupt. Adzuna, Founders Factory, and Elliptic, a cryptocurrency analytics company, stated that there was an “existential danger to the UK’s tech sector.”
“The sector would be hampered by the loss of deposits and the ecosystem would go back 20 years,” they wrote. They wrote that many businesses would be placed into involuntary bankruptcy overnight.
“It is crucial that the government intervenes to ensure the sector’s continued success. Although many depositors will be able to get some of their money back via liquidation, many of us who had most or all of our funds at SVB will not be able wait and will have to go through involuntary liquidation.
“This crisis will begin on Monday, so we ask you to stop it now.”
Entrepreneurs accused Bank of England of showing a “dangerous inability to understand the sector and its role in the wider economy, both now and in the future”.
Darren Jones, chairman, Commons business committee said that the chancellor would have to intervene, particularly since it’s budget week.
Dom Hallas is the executive director of the Coalition for a Digital Economy. He stated that this was a crisis for British start ups. The risk of the crisis will increase if there is no clear plan by Monday. It’s crucial that government has a plan. They can count on the tech ecosystem to support them at every stage.
Matt Clifford is the chairman of the government’s new Advanced Research and Invention Agency. He tweeted: “The UK government wants Britain to be one the most important tech ecosystems in the world. Priority one: Making sure that thousands of UK start ups are paid this month.
The letter was signed by Fred Destin, founder of Stride.VC and Shachar Bialick (founder of fintech company Curve), as well as Nigel Whiteoak (co-founder of LoveCrafts).
British companies scrambled Friday to withdraw deposits from SVB UK because they were afraid they would be caught. Many were unable.
One founder stated that “We have gone from it being business-as-usual on Thursday to not being in able to operate within 48 hours.” It’s like the rug has been pulled out from under our feet.
Chief executive of SVB UK Erin Platts issued a statement Friday to assure British customers that their money is safe. She explained to them that SVB UK was now a separate bank. The funds were also ring-fenced so the US arm couldn’t access them. The US parent company was then taken over by Californian regulators. SVB UK removed Platts statement from its website.
SVB UK’s board includes Vin Murria, a tech entrepreneur, and a stake in Founders Forum. This group was founded by Brent Hoberman, lastminute.com founder.
A Treasury spokesperson stated that they are working with Bank of England to ensure the Bank of England’s failure of Silicon Valley Bank UK is managed smoothly and that disruptions are minimized.