It’s not 2008 again, but the collapse of Silicon Valley Bank could still be bad news for all of us, writes RUTH SUNDERLAND
- The Bank of England said it planned to declare SVB’s UK arm insolvent.
- Thousands of jobs in the UK tech scene could be at risk due to 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 heard of Silicon Valley Bank (SVB), an American lender to California-based high-tech companies that operates here in the UK.
The US bank was seized by regulators on Friday, and the Bank of England said at the weekend that it planned to declare the UK arm insolvent. Suddenly, we are facing the biggest bank failure since the 2008 financial crisis.
The SVB collapse sent shockwaves through the global stock markets, wiping out almost £10bn of value from the big high street banks, NatWest, Barclays, Lloyds and HSBC.
I would not be at all surprised if more bank shares are sold 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: headquarters in California on Friday)
The events unfolding now may sound frighteningly reminiscent of the early stages of the global financial crisis 15 years ago, which led to the collapse of the Royal Bank of Scotland, HBOS and several building societies.
Back then, we were one step away from the collapse of the entire financial system with ATMs at a point close to closing.
At first glance, there seem to be parallels. SVB in the UK is a small lender on the periphery of the financial system. So was Northern Rock, and a run on that former building society was one of the sparks that lit the bonfire of bank stocks in 2008.
However, one crucial difference is that SVB in the UK has no personal clients, so no one’s individual savings and current accounts are at risk.
The US parent company went bankrupt because it had put large sums of money into US government bonds, the value of which recently collapsed. He was then forced to make a forced sale of those bonds at a huge loss.
All banks, including the big UK lenders, hold government bonds. But they are not as exposed as SVB because they have many other assets on their balance sheets. New rules introduced after the credit crunch forced the big UK banks to hold much larger capital buffers in case things go wrong.
It is never wise to be complacent about the stability of the banking sector but, at this stage, it appears that there is greater risk for fast-growing UK tech companies than for the financial system.
SVB in the UK was a key part of the tech scene, backing well-known start-ups such as pension consolidator PensionBee and business review website Trustpilot.
Some companies have been left with nothing due to the insolvency of SVB. Some employers have millions of pounds stuck in the bank that they need to pay salaries and creditors.
They fear they could go under without quick help from the government.
Thousands of jobs in the sector could be at risk.
If a large number of tech companies were to fail, it would have serious repercussions for everyone.
Tech entrepreneurs are the men and women who could spark a new industrial revolution in the UK. Chancellor Jeremy Hunt has pinned his hopes on technology.
The last thing you want is for SVB to drag in a wave of potential future powerhouses in the week you present your Budget. So while we may not be seeing a repeat of 2008, the impact on the tech sector will certainly be detrimental to all of us.