The UK government is coordinating an emergency meeting with tech firms, who are expected to call for state intervention to avoid the failure of hundreds of firms following the collapse of Silicon Valley Bank UK (SVB UK).
The chancellor, Jeremy Hunt, also spoke with the Bank of England governor, Andrew Bailey, on Saturday morning, just hours after the collapse of SVB UK’s parent company, which marked the largest failure by a bank since the 2008 financial crisis.
The City minister, Andrew Griffith, was also set to meet with industry representatives on Saturday afternoon to “discuss the situation and the worries they face”, though some tech leaders are expected to call for government intervention amid fear that nearly all of their deposits will be wiped out.
“The government recognises that tech sector companies are often not cashflow positive as they grow, and that they rely on cash on deposits to cover their day to day costs,” the Treasury said in a statement.
Silicon Valley Bank – which was the 16th largest lender in the US – collapsed and had its assets seized by US regulators on Friday after a tumultuous 48 hours. The lender been trying to raise emergency funding to plug a near $2bn (£1.7bn) hole in its finances, after a surge in withdrawals from customers in the tech industry who have seen funding dry up in recent months.
While there is little chance of contagion across the banking sector – given that the biggest banks serve a wider range of customers and have plenty of capital – tech start-ups and investors are worried about the ripple effects for the sector.
A open letter signed by nearly 200 tech executives is now being drafted to the chancellor, who has been pushing for greater investment and hopes the UK will be the “world’s next Silicon Valley”. A version of the draft letter, seen by the Guardian, warned that the majority of the signatories were this weekend “running numbers to see if we are technically insolvent” after losing deposits at SVB UK.
It explained that the tech sector is highly interconnected and the loss of deposits had the potential to cripple the sector, with many business at risk of falling into insolvency overnight.
It is understood that the Bank of England’s decision to place the subsidiary of the collapsed US lender into insolvency on Friday night will override any requests to withdraw or transfer funds to other banks – even if they had been filed, but not executed, by the time authorities stepped in.
It means that most of the lender’s 3,500 customers will see the bulk of their deposits at SVB UK wiped out, despite having been promised by UK chief executive Erin Platts on a Zoom call on Friday afternoon that the bank would continue operating next week as usual.
Attendees pushed Platts about transfer requests, saying many customers were still waiting for their funds to be moved out of their SVB UK accounts amid the panic. Platts said those transfers would still go through, but stressed there was a massive volume of requests to process.
That backlog had built up rapidly, as SVB UK’s 750 staff struggled to keep up as panic over the health of its parent firm gripped global markets.
The growing panic also forced Platts to issue a public statement, assuring customers that SVB UK’s operations were “ringfenced” from the US parent firm, and that deposits were protected up to £85,000 by the Financial Services Compensation Scheme.
But at 11:45pm on Friday night the Bank of England issued a statement confirming that it was placing SVB UK into insolvency. It said customers would receive up to £85,000 through the compensation scheme as soon as possible, while SVB UK’s creditors would receive whatever cash was gained through a liquidation of the other assets.
The Bank of England tried to assure markets, saying the impact of SVB’s closure would be minimal. “SVB UK has a limited presence in the UK and no critical functions supporting the financial system.”
Reports also emerged on Saturday that fledgling lender Bank of London was considering a bid for SVB UK’s operations. However, it is understood that regulators are still planning on proceeding with liquidation plans, rather than courting potential buyers.
The Bank of England and SVB UK declined to comment.