It’s not 2008 anymore – but Silicon Valley Bank’s collapse could still be bad news for all of us, writes RUTH SUNDERLAND
- The Bank of England has said it plans to put SVB’s UK branch out of business
- Thousands of jobs in UK tech scene could be at risk because of SVB
- There will be serious repercussions if a large number of tech companies go bankrupt
Until this weekend, very few people in Britain would have even heard of Silicon Valley Bank (SVB), an American lender to tech companies in California that has an operation here in the UK.
The US bank was seized by regulators on Friday, and the Bank of England said over the weekend that it planned to put the UK branch out of business. As a result, we are facing the biggest bank failure since the 2008 financial crisis.
The collapse of SVB sent shockwaves through global stock markets, wiping nearly £10bn from the value of high street banks NatWest, Barclays, Lloyds and HSBC.
I wouldn’t be at all surprised if there were more sell-offs in bank stocks today.
So what does all this mean for ordinary savers and bank customers?
It was announced on Friday that California regulators had taken over SVB (pictured: California headquarters on Friday)
Events unfolding now might seem chilling and recall the early stages of the global financial crisis 15 years ago which led to the downfall of the Royal Bank of Scotland, HBOS and a number of companies of construction.
At the time, we were on the brink of the collapse of the entire financial system with ATMs at one point about to be shut down.
At first glance, there seem to be parallels. SVB in the UK is a small lender at the periphery of the financial system. So was Northern Rock, and a run against that former construction company was one of the sparks that ignited the bank stocks bonfire in 2008.
A crucial difference, however, is that SVB in the UK has no personal customers, so no one’s savings and checking accounts are at risk.
The US parent company went bankrupt because it invested very large sums in US government bonds, which recently fell in value. She was then forced to sell those bonds at a big loss.
All banks, including major UK lenders, hold government bonds. But they are not as exposed as SVB as they have many other assets on their balance sheets. New rules introduced in the wake of the credit crunch have forced Britain’s big banks to maintain much larger capital cushions in case something goes wrong.
It’s never wise to settle for stability in the banking sector but, at this point, it looks like the UK’s fast-growing tech companies are at greater risk than the financial system.
SVB in the UK was a key part of the tech scene, backing well-known start-ups, such as pension fund consolidator PensionBee and business review website Trustpilot.
Some companies have been left behind by the insolvency of SVB. Some contractors have millions of pounds trapped in the bank that they need to pay salaries and creditors.
They fear they will overwhelm themselves without prompt help from the government.
Thousands of jobs in the sector could be threatened.
If a large number of technology companies were to fail, it would have serious repercussions for everyone.
Tech entrepreneurs are the men and women who could bring about a new 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 powerhouses to be swept away 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.
