- By Tom Espiner & Laura Kuenssberg
- BBC news
image source, Getty Images
Silicon Valley Bank (SVB) offices in the US were closed as customers sought their funds
The government says it is working “at pace” on a plan to prevent UK tech firms caught up in the collapse of Silicon Valley Bank from running out of cash.
The Treasury said it wanted to “minimize damage to some of our most promising businesses in the UK” after the US bank’s failure on Friday.
Businesses can start running into problems on Monday morning without intervention.
The bank’s UK subsidiary will be placed into insolvency from 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 find a solution” to the collapse of Silicon Valley Bank UK, Mr. Hunt. BBC’s Sunday with Laura Kuenssberg programme.
While there is no risk to Britain’s financial system as a whole, “there is a serious risk to some of our most promising companies in technology and life sciences”, Hunt said.
“These are very important businesses for the UK, a very important part of our future.”
“We want to find a way that minimizes or avoids all losses to the incredibly promising (companies),” Mr. Hunt, although he said he could not commit to companies recovering all their money.
He said the government was “working at pace” to put forward a plan to ensure businesses can meet their cash flow needs “within the next few days”.
That plan will mean companies can pay their staff, he said. “That’s the big question we’ve had in the last 24 hours.”
But Rachel Reeves, Labour’s shadow chancellor, said businesses urgently needed to hear how the government planned to help.
She said start-ups had to pay wages and suppliers, and some could feel pressure on share prices or even have investors say they no longer have confidence.
“We need tomorrow morning to hear from the government how they are going to protect businesses,” she said, whether that be guarantees or working with the US government to bail out the bank.
Asked whether the government will find a solution when markets open on Monday morning, Prime Minister Sunak said: “Finance is working at pace.”
More than 200 heads of British technology companies signed a letter on Saturday to Mr. Hunt, where they called for government intervention.
The letter from Fintech Founders said many fintech companies had their entire banking relationship with SVB “and will therefore go into liquidation immediately unless preventive measures are taken”.
“The firms affected by SVB’s collapse serve millions of people in the UK along with businesses that are critical to our economy,” the letter said.
“The cost of inaction here means these companies may fail in the short term and your ambitions for technology growth will fail in the long term.”
A tech company source told the BBC: “It all feels like it could be quite terminal for British technology.”
“This Monday, at least 200 companies employing tens of thousands of people will find they cannot pay their staff or suppliers because the bank they had an account with has gone bankrupt,” the source said.
Between 30% and 40% or UK start-ups employing up to 50,000 people could be affected by the collapse, the source added.
Michael Moore, director general of the British Private Equity and Venture Capital Association, said this was an “urgent matter” and that “help is needed tomorrow (Monday)” for technology companies and entrepreneurs.
SVB collapsed in the US after failing to raise $2.25bn.
Its problems led to a run on the bank in the United States and sparked investor fears about the general state of the banking sector.
US Treasury Secretary Janet Yellen said on Sunday that she was working closely with regulators to protect US depositors, but she was not considering a bailout.
Silicon Valley Bank specialized in lending to early-stage companies, and the company financed nearly half of US venture-backed technology and healthcare companies that listed on the stock markets last year.
The firm, which started as a California bank in 1983, expanded rapidly over the past decade. It employs more than 8,500 people globally, with the majority of its operations in the United States.
But it has been under pressure as higher tariffs make it harder for start-ups to raise money through private fundraising or share sales. More customers withdrew deposits in a trend that slowed last week.
Silicon Valley Bank UK has stopped making payments or accepting deposits before it goes into insolvency from Sunday.
The move will allow individual depositors to be paid up to £85,000 from the UK’s deposit insurance scheme.
But the government committing to protecting more than this would be a “serious moral hazard”, says Permanent Secretary to the Treasury Nick Macpherson tweeted – that is, depositors would lack an incentive to hedge against risk if they expected the government to pay in full in any UK banking collapse.