After U.S. regulators shut down Silicon Valley Bank (SVB) on Friday, the Bank of England has closed the company’s U.K.-based arm. The central bank explained that it intends to place the subsidiary into bank insolvency procedures.
Fallout From SVB Failure Prompts BOE to Close U.K. Branch
The ripple effect of the 16th largest bank in the United States failing has started to unwind after Silicon Valley Bank (SVB) was shut down by the U.S. Federal Deposit Insurance Corporation (FDIC) and the California Department of Financial Protection and Innovation (DFPI). California’s DFPI explained that the chaos at SVB started on Wednesday and by Thursday, customers attempted to withdraw $42 billion in deposits via wire transfers.
SVB’s failure has now moved overseas and has affected the company’s U.K. subsidiary, prompting the Bank of England to step in and shut it down. On Saturday, SVB U.K.’s official Twitter page retweeted a joint statement from a variety of U.K. venture capital funds supporting the U.K. branch.
The Bank of England (BOE) said Silicon Valley’s U.K. branch will stop processing payments and is no longer accepting deposits. “The Bank of England, absent any meaningful further information, intends to apply to the court to place Silicon Valley Bank U.K. Ltd. into a bank insolvency procedure,” the BOE statement reads. “A bank insolvency procedure would mean that eligible depositors are paid out by the FSCS as quickly as possible, up to the protected limit of £85,000, or up to £170,000 for joint accounts.”
In a note sent to Bitcoin.com News, Susannah Streeter, the head of money and markets at Hargreaves Lansdown, said the SVB U.K. arm was bound to fail.
“It was looking inevitable that the dramatic loss of confidence in SVB would also sweep its U.K. arm into insolvency,” Streeter said. “The run on the U.S. bank spooked customers banking with the British subsidiary, despite protestations that it was ringfenced from its parent. Once U.S. regulators stepped in to ground the mothership, attempts to withdraw deposits escalated, putting the bank in a highly precarious position,” the market analyst added.
The BOE statement on Friday noted that Silicon Valley’s U.K. branch will see its other assets and liabilities handled by liquidators, and recoveries will be distributed to creditors in that fashion. “[Silicon Valley Bank U.K.] has a limited presence in the U.K. and no critical functions supporting the financial system,” the BOE statement stressed. The Hargreaves Lansdown analyst explained that central bank rate hikes may be scrutinized more carefully before other financial failures follow SVB’s collapse.
“It’s clear that the rapid escalation in rates has taken the sector by surprise and the determination by the Fed to keep raising rates has brought fresh worries,” Streeter concluded. “Policymakers will now be monitoring this turn of events very closely, and now may be more likely to tread carefully with further rate rises, to ensure nothing else gets badly broken.”
What do you think this event means for the future of banking stability, both in the U.S. and abroad? Share your thoughts in the comments section below.