UK finance minister and Bank of England work to contain SVB fallout

The Korea Times

The Korea Times

World

Wed, November 29, 2023 | 03:38

UK finance minister and Bank of England work to contain SVB fallout

Posted : 2023-03-12 11:06

Updated : 2023-03-12 11:06

A woman with an umbrella stands in front of the Bank of England, at the financial district in London, Thursday, Nov. 3, 2022. From winemakers in California to startups across the Atlantic Ocean, companies are scrambling to figure out how to manage their finances after their bank, Silicon Valley Bank, suddenly shut down on Friday, March 10. AP-Yonhap

Britain's finance ministry and the Bank of England are working to minimize the disruption that could arise from a collapse of the U.K. arm of Silicon Valley Bank, which has been seized by U.S. regulators, the ministry said on Saturday.

Talks were scheduled for Saturday to discuss the issues faced by British tech companies affected by the collapse, the ministry said in a statement. The Bank of England on Friday said it was seeking a court order to place SVB UK into an insolvency procedure.

"The government recognizes 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 statement said.

Advisory firm Rothschild is exploring options for SVB U.K. as insolvency looms, two people familiar with the discussions told Reuters.

More than 250 U.K. tech firm chief executives signed a letter addressed to Jeremy Hunt, the British chancellor of the exchequer (finance minister), calling for government intervention, a copy seen by Reuters shows.

"The recent news about SVB going into insolvency represents an existential threat to the U.K. tech sector," the letter said. "This weekend the majority of us as tech founders are running numbers to see if we are potentially technically insolvent."

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"Most businesses are operating on very fine margins in the current economy and the contagion from the initial insolvencies will be vast and impact the economy far beyond the tech sector," the letter said.

Sky News had reported earlier on Saturday that a British clearing bank, the Bank of London, was considering a rescue bid for the U.K. arm of SVB.

Under insolvency proceedings for banks in Britain, some depositors are eligible for up to 85,000 pounds ($102,000) of compensation for cash held at lenders, or 170,000 pounds for joint accounts.

Britain's Department for Science, Innovation and Technology is also talking to the affected tech firms. A further statement will be issued after the talks on Saturday.

Susannah Streeter, head of money and markets at the investment firm Hargreaves Lansdown, said in an emailed note that there would be aftershocks in the tech sector next week.

"Urgent talks regarding potential takeovers will be ongoing, with regulators under pressure to negotiate bailouts to avoid further damaging fallout," Streeter said.

The ministry said Britain's banking system remained strong and resilient. The issues affecting Silicon Valley Bank were specific to it and did not have implications for other banks operating in the U.K., the ministry said. (Reuters)