Expert comment: HSBC rescues Silicon Valley Bank
13th March 2023, 3:31 pm
Dr Maria Paola Rana, Lecturer in Economics and Finance, University of Salford Business School, comments:
“Following the collapse of Silicon Valley Bank (SVB) in the US, more than 200 CEOs of tech companies in the UK have been calling for the government to intervene to protect a sector which is key and strategic for the economic growth of the country. Based on the letter sent to the government by over 200 tech entrepreneurs, several UK tech companies rely on SVB as their primary bank. Consequently, the insolvency of the bank represents an existential threat to the UK tech sector, since it leaves them without funds and liquidity to pay employees, suppliers and crucially to invest in R and D (research and development). Globally, there is also fear of a knock-on effect on other lenders, as global banking shares suffered on Friday.
“SVB UK, the UK independent subsidiary, held almost £7bn in deposits on Friday. Under the Prudential Regulation Authority protection, deposits are insured up to £85,000 (£170,000 for joint deposits). The Bank of England has confirmed there is no systematic contagion risk for the UK’s financial system – SVB UK, in fact, “has limited presence in the UK and no critical functions supporting the financial system.”
“The Chancellor, the Prime Minister and the Treasury however, all acknowledge that there is a significant risk to some of the most promising tech and life science start-ups in the UK. A deal for HSBC to acquire the UK arm of the bank has now been reached, spelling a sigh relief for the tech sector, its employees, suppliers and its future.
“With the clock ticking, the government had to act quickly to have a clear understanding of the full exposure of tech start-ups and the knock-on effects on related sectors, as well as the larger economy. Solutions needed to be found urgently to avoid larger and longer term damage to a sector that will be an essential element of the UK’s strategy for economic growth. The collapse of SVB and the exposure of UK start-ups has been a wake-up call to reflect on how strategic new businesses are funded and the role the government should have in ensuring they can start and thrive in the future.”
Dr Massimo Preziuso, Lecturer in Financial Technology, University of Salford Business School, adds:
“The US and UK governments response to this huge crisis looks appropriate, while the HSBC intervention in the UK looks intelligent and helpful. A large segment of the innovation scene was (and still is) at risk, which is something the UK cannot let happen.
“The problem is that the quick collapse of SVB further highlights the financial markets are under serious stress, which is also difficult to detect. It is mainly due to high interest rates which risk bringing light to all the problems driven by a too lengthy period of monetary expansion and ‘cheap money.’ Many innovative business models are not designed to support this phase easily and it’s likely a period of broader public intervention may well be needed, again.”