SVB International Fallout: UK and EU Lenders Lose £30 Billion Overnight as ‘Panic’ Spreads

Silicon Valley Bank headquarters in Santa Clara, California, US, on Friday, March 10, 2023
Philip Pacheco/Bloomberg via Getty Images

The fallout from the run on the Silicon Valley Bank in California went international overnight, with British and European Union lenders seeing nearly £30 billion wiped off their portfolios and the Bank of England stepping in to take over the insolvency process for the British arm of SVB to protect the deposits of British firms tied to the bank.

Since Friday, the Stoxx Europe 600 banks index, which also includes leading British lenders, saw a mass sell-off in the wake of the collapse of the Silicon Valley Bank, the largest American bank failure since the 2008 financial crisis. In total, the European-UK banking index saw a one-day decline of 3.8 per cent, with €33.5 billion (£29.6/$35.6 billion) being wiped off their balance sheets.

Some of the United Kingdom’s largest banks saw their shares fall significantly, with HSBC declining by 4.6 per cent, Lloyds Banking Group falling by 3.3 per cent, and shares in NatWest going down by 2.5 per cent, The Times of London reports.

British-based investors in SVB have already reportedly failed to withdraw their funds from the UK-based branch of the investment bank, sparking fears that tech start-ups could potentially go under if the government doesn’t intervene to save the bank.

The British tech start-up lobby group said that there is a sense of “panic” among its members, with executive director Dom Hallas saying: “We know that there are a large number of start-ups and investors in the ecosystem who have significant exposure to SVB UK and will be very concerned.

“We have been engaging with the UK government including Treasury and No 10 about the potential impact and I know that work has been going on overnight on policy options,” he added.

In response to the failure and the potential of contagion, the Bank of England — Britain’s equivalent of the U.S. Federal Reserve — announced in a late-night statement on Friday evening that it is planning to use its bank insolvency scheme to put the British branch of SVB into resolution, which would allow for depositors to receive up to £85,000 in the coming days from the government’s deposit insurance programme.

An administrator would then be put in charge of the insolvency process to divvy up the remaining UK assets between its creditors and large depositors. According to a report from the Financial Times, the financial advisory firm Interpath has been rumoured as a potential candidate for the administration process, however, this has yet to be confirmed.

Attempting to quell the panic, the BoE said that “SVB UK has a limited presence in the UK and no critical functions supporting the financial system.”

The California Department of Financial Protection and Innovation had described SVB as being in “sound financial condition” before the run on the bank, which saw customers withdraw some $42 billion, resulting in the bank having a negative cash balance of $958 million.

While the Federal Deposit Insurance Corporation (FDIC) in the United States pledged that all insured deposits in the bank will be honoured, this may not be a huge comfort to many of the bank’s customers, given that reportedly only seven per cent of SVB deposits are insured.

The failure of the United States’ 16th-largest bank has already begun to see calls for a federal bailout, which would once again see average Americans send their hard-earned tax dollars to some of the wealthiest in the country instead of letting the creative destruction of capitalism run its course.

Former Democrat presidential candidate Andrew Yang said that either the Treasury Department or the State of California should step in, arguing: “In the absence of some kind of action you’ll see thousands of mass layoffs and defunct companies, a wiped out generation of start-ups, huge problems in [California] in particular and a spreading financial contagion that will infect a host of regional banks at a minimum.”

Besides the risk of financial contagion, establishment figures on both the left and right have argued that it is necessary for national security to bailout the bank to prevent its tech start-up customers from going bust and thereby putting the United States at a disadvantage in the tech race against the likes of Communist China.

There has been some pushback, however, against the idea of bailing out the California-based bank, including from Congressman Matt Gaetz, who said: “If there is an effort to use taxpayer money to bail out Silicon Valley Bank, the American people can count on the fact that I will be there leading the fight against such a bailout,” adding: “The financial arm of Silicon Valley has just been severed before our very eyes.”

Republicans pointed to the disastrous economic policies of the Biden administration and the ensuing ‘Bidenflation’ for triggering the bank’s failures, while other conservatives noted that the Silicon Valley Bank likely deployed the use of woke Environmental, Social, and Governance (ESG) scores in its operations, meaning that the bank may have prioritised left-wing causes instead of focusing on financial viability.

Follow Kurt Zindulka on Twitter here @KurtZindulka


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