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After US regulators shut down Silicon Valley Bank (SVB) on Friday, the Bank of England closed its UK-based branch. The central bank explained that it intended to place the subsidiary in the bank’s insolvency proceedings.
The effects of the SVB failure prompt BOE to close its UK branch
The ripple effect of the collapse of the 16th-largest bank in the United States began to fade after the closure of Silicon Valley Bank (SVB) by the US Federal Deposit Insurance Corporation (FDIC) and the California Department of Financial Protection and Innovation (DFPI). California’s DFPI explained that the chaos at SVB began on Wednesday, and by Thursday customers were trying to withdraw $42 billion in deposits via wire transfers.
SVB’s collapse has now spilled over and affected the firm’s UK subsidiary, prompting the Bank of England to step in and shut it down. On Saturday, the official SVB UK Twitter page retweeted a joint statement from various UK venture capital funds supporting the UK branch.
The Bank of England (BOE) has announced that the UK branch of Silicon Valley will stop processing payments and will no longer accept deposits. “The Bank of England, in the absence of further relevant information, intends to apply to the court to place Silicon Valley Bank UK Ltd. in insolvency proceedings,” the BOE statement reads. “A bank insolvency procedure would mean that eligible depositors are paid out by the FSCS as soon as possible, up to a protected limit of £85,000, or up to £170,000 for joint accounts.”
In a memo sent to Bitcoin.com News, Susannah Streeter, head of money and markets at Hargreaves Lansdown, said SVB UK’s arm was doomed to failure.
“It seemed inevitable that the dramatic loss of confidence in SVB would also lead to the insolvency of the UK branch,” said Streeter. “The burst on the US bank has spooked customers using the UK branch, despite protests that he has been separated from his mother. As US regulators stepped in to ground the mothership, attempts to withdraw deposits increased, leaving the bank in a very precarious position.
Friday’s BOE statement noted that Silicon Valley’s UK branch will see its other assets and liabilities handled by liquidators, and any recoveries will thus be redistributed to creditors. “[Silicon Valley Bank U.K.] has a limited UK presence and no critical functions to support the financial system. An analyst at Hargreaves Lansdown explained that the central bank’s rate hikes could be scrutinized more closely before other financial setbacks follow the collapse of the SVB.
“It is clear that the rapid escalation of interest rates has taken the sector by surprise, and the Fed’s determination to raise rates further has sparked new concerns,” Streeter concluded. “Policy makers will now be monitoring this turn of events very closely, and it may now be more likely that they will be more careful with further rate hikes to ensure nothing else is seriously messed up.”
What do you think this event means for the future of banking stability, both in the US and abroad? Share your thoughts in the comments section below.
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