British technology companies face a “serious risk” from the collapse of Silicon Valley Bank UK, the Chancellor has warned, as he vowed the Government will do “everything we can” to protect them.
Jeremy Hunt said he has been in talks over the weekend with Prime Minister Rishi Sunak and Bank of England Governor Andrew Bailey, and “we are working at pace on a solution”.
He said the plan will backstop the cashflow needs of firms affected by the implosion of the bank, a lender to “some of our most promising and exciting businesses”.
Mr Sunak, speaking to reporters accompanying him to the US, said the Government recognises the “anxiety and the concerns customers of the bank have” and is “making sure we can work to find a solution that secures people’s operational liquidity and cashflow needs”.
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Labour warned that the British start-up industry must not “pay the price” for the bank’s failure and urged the Government to offer more than “warm words” to those affected.
The Bank of England announced on Friday that Silicon Valley Bank UK is set to enter insolvency, following action taken by its parent company in the United States.
While there is no risk to the UK’s financial system as a whole, Mr Hunt said “there is a serious risk to our technology and life sciences sectors, many of whom bank with this bank”.
Speaking on Sunday morning political broadcast shows, he said: “The Prime Minister and I and the Governor of the Bank of England are absolutely determined to do everything we can to protect the future of these very, very important companies.
“We want to find a way that minimises or, if we possibly can, avoids all losses to those incredibly promising companies.
“What we will do is bring forward very quickly a plan to make sure that they can meet their operational cashflow requirements.”
The Chancellor declined to say whether the Government will guarantee 100% of the deposits companies had with the lender or whether it could mean stepping in with taxpayers’ money.
Shadow chancellor Rachel Reeves stressed the urgency of the situation, noting that when markets open on Monday many companies will not know whether they can pay staff or suppliers.
She said: “We need tomorrow morning to hear from the Government how they are going to protect them. Whether that is guaranteed, whether that is working with the US government on a rescue for Silicon Valley Bank, there are different answers to this problem.
“We cannot let the British start-up community pay the price for this bank failure, because it will be the British economy then that ultimately pays the price.
“I would urge the Government to do more than offer warm words, but come forward with specific plans.”
Mr Sunak reiterated that the Government does not “believe there is a systemic contagion risk”, as he declined to “get into speculating” when pressed on whether an emergency scheme to cover deposits is being considered.
The Prime Minister backed the Bank of England Governor, saying “yes” when asked if Mr Bailey is overseeing a robust regulatory environment for UK banks.
In a statement on Sunday morning, the Treasury said it is treating the issue “as a high priority”.
“The Government and the Bank understand the level of concern that this raises for customers of Silicon Valley Bank UK, and especially how it may impact on cashflow positions in the short term,” the statement said.
It added that the Government recognises Silicon Valley Bank UK’s (SVBUK) failure “could have a significant impact on the liquidity of the tech ecosystem”.
While Silicon Valley Bank (SVB) has a limited presence in the UK and does not perform functions critical to the financial system, the Coalition for a Digital Economy (Coadec) warned its collapse could have a significant impact on tech start-ups.
Coadec executive director Dom Hallas said on Saturday: “We know that there are a large number of start-ups and investors in the ecosystem who have significant exposure to SVBUK and will be very concerned.
“We have been engaging with the UK Government, including Treasury and No 10, about the potential impact and I know that work has been going on overnight on policy options.”
SVBUK said it will be put into insolvency from Sunday evening. It is a subsidiary of Silicon Valley Bank (SVB) and was the first location it opened outside the US.
The insolvency announcement came after SVB was put under US government control on Friday afternoon in the biggest failure of a US bank since the 2008 financial crisis.
The Bank of England said the company will stop making payments and accepting deposits.
