RUTH SUNDERLAND: Silicon Valley Bank may be bad news for us all
It’s not 2008 again – but the collapse of the Silicon Valley Bank could still be bad news for all of us, writes RUTH SUNDERLAND
- The Bank of England said it planned to bankrupt SVB’s UK arm
- Thousands of jobs in the UK tech scene could be at risk because of SVB
- There will be serious consequences if a large number of technology companies go bankrupt
Until this weekend, very few people in Britain would have even heard of Silicon Valley Bank (SVB), a US lender to California high-tech companies operating here in the UK.
The U.S. bank was seized by regulators on Friday, and the Bank of England said over the weekend it intended to bankrupt the UK arm. Suddenly we are faced with the largest bank failure since the financial crisis of 2008.
The collapse of SVB sent shock waves across world stock markets and wiped out nearly £10bn from the value of the major banks, NatWest, Barclays, Lloyds and HSBC.
I wouldn’t be surprised if more bank shares are sold today.
So what does it all mean for regular savers and bank customers?
It was announced on Friday that California regulators had acquired SVB (Photo: California headquarters on Friday)
The events now unfolding are perhaps frighteningly reminiscent of the early stages of the global financial crisis 15 years ago, which led to the collapse of the Royal Bank of Scotland, HBOS and a number of building societies.
At the time, we were on the verge of the collapse of the entire financial system with ATMs almost closing at one point.
At first glance, there seem to be parallels. SVB in the UK is a small lender on the fringes of the financial system. So was Northern Rock, and a run on that former construction company was one of the sparks that ignited the fire of bank stocks in 2008.
A crucial difference, however, is that the SVB does not have retail customers in the UK and so does not put anyone’s individual savings and current accounts at risk.
The US parent company went under because it had invested very large sums of money in US government bonds, the value of which has recently plummeted. It was then forced into a forced sale of those bonds at a large loss.
All banks, including the major British lenders, hold government bonds. But they are not as vulnerable as SVB because they have enough other assets on their balance sheet. New rules introduced after the credit crunch required major UK banks to hold much larger capital cushions in case something goes wrong.
It is never wise to be complacent about the stability of the banking sector, but at this stage it seems there is greater risk to the UK’s fast-growing tech companies than to the financial system.
SVB in the UK has been an important part of the tech scene, backing well-known start-ups such as pension pot consolidator PensionBee and business review website Trustpilot.
Some companies have been left behind by the bankruptcy of the SVB. Some entrepreneurs have millions of pounds in the bank that they need to pay salaries and creditors.
They fear that without prompt help from the government, they could perish.
Thousands of jobs in the sector could be at risk.
If a large number of technology companies went bankrupt, it would have serious consequences for everyone.
Tech entrepreneurs are the men and women who could spark another industrial revolution in the UK. Chancellor Jeremy Hunt has pinned his hopes on technology.
The last thing he wants is for a wave of potential future superpowers to be dragged along by SVB in the week he presents his Budget. So while we may not be looking at a repeat of 2008, the impact on the technology sector will certainly be detrimental to all of us.