The government says it is working “at breakneck speed” on a plan to keep UK tech firms caught up in Silicon Valley Bank’s demise from running out of cash.
The Treasury stated that it wanted to “minimise damage to some of our most promising companies in the UK” following the failure of the US bank last Friday.
On Friday, US regulators shut down the lender, the largest failure of a US bank since 2008.
The bank’s UK subsidiary will be declared bankrupt on Sunday evening.
Prime Minister Rishi Sunak, Chancellor Jeremy Hunt, and Bank of England Governor Andrew Bailey “were up late last night” and have been “working through the weekend to come up with a solution” to Silicon Valley Bank UK’s failure, Mr Hunt said on the BBC’s Sunday with Laura Kuenssberg.
While there is no threat to the UK’s financial system as a whole, “there is a serious risk to some of our most promising companies in technology and life sciences,” according to Mr Hunt.
“These are very important companies to the United Kingdom, and they are a very important part of our future.”
“We want to find a way to minimise or avoid all losses to those incredibly promising [firms],” Mr Hunt said, adding that he couldn’t guarantee that companies would recover all of their money.
He said the government was “working at pace” to bring forward a plan to make sure firms can meet their cashflow needs “within the next few days”.
According to him, this plan will allow businesses to pay their employees. “That’s the biggest request we’ve received in the last 24 hours.”
Labour’s shadow chancellor, Rachel Reeves, said firms needed to know right away how the government planned to assist them.
She stated that start-ups must pay wages and suppliers, and that some may face pressure on share prices or even lose investor confidence.
“We need to hear from the government tomorrow morning about how they are going to protect firms,” she said, referring to either guarantees or working with the US government on a bank rescue.
When asked if the government would have a solution by the time the markets opened on Monday, Prime Minister Mr Sunak responded, “The Treasury is working at pace.”
Concerns about technology firms
On Saturday, more than 200 UK tech CEOs signed a letter to Mr Hunt requesting government intervention.
The letter, from Fintech Founders, said many financial technology firms had all of their banking with SVB “and will therefore go into receivership imminently unless preventative action is taken”.
“The firms affected by SVB’s failure serve millions of people in the UK, as well as businesses that are critical to our economy,” the letter stated.
“The cost of inaction here is that these firms may fail in the short term, and your long-term technology growth ambitions will fail.”
“It all feels like it could be pretty terminal for UK tech,” a source in a tech firm told the BBC.
“On Monday, at least 200 businesses employing tens of thousands of people will find themselves unable to pay their employees or suppliers because the bank with which they had an account went bankrupt,” a source said.
The collapse could affect between 30% and 40% of UK start-ups employing up to 50,000 people, according to the source.
The British Private Equity and Venture Capital Association’s director general, Michael Moore, stated that this is a “urgent matter” and that “help is needed by tomorrow [Monday]” for tech firms and entrepreneurs.
SVB collapsed in the United States after failing to raise $2.25 billion (£1.9 billion) to cover a loss on the sale of assets, primarily US government bonds, that were impacted by higher interest rates.
Its problems prompted a bank run in the United States and raised investor concerns about the overall state of the banking sector.
Silicon Valley Bank’s stock has taken a hit in the financial sector.
Silicon Valley Bank specialised in early-stage lending, and the company banked nearly half of the US venture-backed technology and healthcare companies that went public last year.
The company, which began as a California bank in 1983, has grown rapidly over the last decade. It employs over 8,500 people worldwide, with the majority of its operations based in the United States.
However, it has come under pressure as higher interest rates make it more difficult for start-ups to raise funds through private fundraising or share sales. More customers were withdrawing deposits, a trend that accelerated last week.
Silicon Valley Bank UK ceased making payments and accepting deposits on Sunday before declaring insolvency.
Individual depositors will be able to receive up to £85,000 from the UK’s deposit insurance scheme as a result of the change.
However, the government committing to protecting any more than this would be a “serious moral hazard,” according to Treasury permanent secretary Nick Macpherson, because depositors would have no incentive to protect themselves if they expected the government to fully pay out in the event of a UK bank failure.