On Saturday night, Jeremy Hunt, the Chancellor, was considering intervening to bail out British tech start-ups affected by the bankruptcy of a US bank.
Silicon Valley Bank UK, the British subsidiary of the American institution, was due to be put into insolvency by the Bank of England on Saturday night following the collapse of its US parent.
As a result, British start-ups spent Saturday scrambling to secure emergency funding from investors, as they feared being unable to pay their staff and suppliers. Over 210 technology companies wrote to the Chancellor, warning of the potentially devastating impact on the UK tech sector and asking for immediate action to prevent businesses from going bankrupt.
Under the insolvency process, deposit holders will only have access to the £85,000 guaranteed by the Financial Services Compensation Scheme until creditors are repaid. The Bank of London and other banks are reportedly interested in acquiring SVB UK’s assets.
However, sources involved in negotiations have suggested that the Treasury may need to intervene to prevent a “bloodbath” on Monday. The government has acknowledged that cash flow is critical for growing tech sector companies and that they often rely on deposits to cover day-to-day costs.
In the US, Circle Internet Financial, the parent company of USD Coin, a major cryptocurrency, announced it had $3.3bn (£2.7bn) deposited in the collapsed SVB, causing the value of USD Coin to drop sharply. Despite being intended to trade at exactly $1, USD Coin fell to a low of 87 cents on Saturday morning before recovering.
Meanwhile, in Britain, over 210 technology companies spent Saturday seeking emergency financing from investors, fearing that they would be unable to pay their staff and suppliers. The start-ups sent a letter to the Chancellor, signed by founders and chief executives from companies including Adzuna, ClearScore and Curve, warning of an “existential threat to the UK tech sector” and saying businesses risked being “sent into involuntary liquidation” without immediate action.
Under the insolvency process, deposit holders will only have access to the £85,000 guaranteed by the Financial Services Compensation Scheme until creditors are repaid. The Bank of London is reportedly interested in acquiring SVB UK’s assets, with sources involved in negotiations suggesting that the Treasury may need to intervene to prevent a “bloodbath” on Monday.
Options being considered include the British Business Bank taking control of some of SVB UK’s loans to start-ups, with other assets sold off to private banks, or the Treasury or BBB providing a backstop so that start-ups can access funds.
The Bank of England froze activity on Friday night, stating it would do so until the bank was put into insolvency. However, tech leaders were angry at the central bank’s statement, which suggested that “SVB UK has a limited presence in the UK and no critical functions supporting the financial system.” The start-up’s letter to the Chancellor stated that this showed the Bank had a “dangerous lack of understanding of the [tech] sector and the role it plays in the wider economy.”
SVB UK announced that it intends to be put into insolvency from Sunday evening following conversations with the PRA, saying that it is determined to work on behalf of its clients. The Bank of London did not comment on its reported interest was first reported by Sky News.
