The collapse of the UK branch of Silicon Valley Bank (SVB) is being mitigated by the Treasury and Bank of England, according to the Treasury.
US regulators shut down the country’s 16th largest bank, in the biggest collapse of a financial institution since the 2008 financial crisis.
SVB had failed after depositors – mostly technology workers and venture capital-backed companies – began withdrawing their money, creating a run on the bank.
Despite this failure, the finance ministry said Britain’s banking system remained strong and resilient, adding that the issues affecting SVB were specific to it and did not have implications for other banks operating in the UK.
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In a bid for government intervention, more than 250 tech company chief executives signed a letter addressed to Chancellor Jeremy Hunt.
It said that SVB’s insolvency represented “an existential threat to the UK tech sector” and the tech founders themselves would be “running numbers to see if they were potentially technically insolvent”.
The letter continued: “Most businesses are operating on very fine margins in the current economy and the contagion from the initial insolvencies will be vast and impact the economy far beyond the tech sector.”
The finance ministry said in a statement: “The government recognises that tech sector companies are often not cashflow-positive as they grow and that they rely on cash on deposits to cover their day-to-day costs.”
The Bank of England on Friday said it was seeking a court order to place SVB UK into an insolvency procedure after US regulators took over its parent company SVB Financial Group.
Under insolvency proceedings for British banks, some depositors are eligible for up to £85,000 ($102,000) of
compensation for cash held at lenders, or £170,000 ($204,000) for joint accounts.
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Bank of London may bid for SVB
The Bank of London was considering salvaging the UK arm of SVB but given the clearing bank was only established two years ago, the credibility of an offer is unclear.
Susannah Streeter, head of money and markets at the investment firm Hargreaves Lansdown, said in an email that there would be aftershocks in the tech sector next week.
Ms Streeter said: “Urgent talks regarding potential takeovers will be ongoing, with regulators under pressure to negotiate bailouts to avoid further damaging fallout.”