Regulators worldwide are in a race against time to prevent contagion to the financial system after Silicon Valley Bank collapsed.
The California bank was closed on March. 10 by U.S. regulators after a run on the bank. The run stemmed from the firm’s announcement that it planned to raise $2.25 billion by issuing new equity to shore up its finances, after it sold bonds in its portfolio of investments at a $1.8 billion loss.
About $42 billion of deposits were withdrawn by the end of March 9, according to a regulatory filing. By the close of business that day, SVB had a negative cash balance of $958 million.
The FDIC took control and is now the manager of $175 billion in customer deposits, including money from several startups and from some of the biggest names in the technology world.
The regulator also created a new banking entity and indicated that unsecured depositors -- SVB customers with more than $250,000 in their accounts -- will not, for the moment, have access to their money.
SVB UK Becomes a Subsidiary of HSBC
This announcement, made on March 10, left much uncertainty about the ability of many startups to operate in the coming weeks, since their funds are locked up. The FDIC had also said that it would pay uninsured depositors an "advance dividend within the next week."
Companies with SVB accounts, lines of credit and credit facilities were wondering what this meant for them, when they would be able to access their funds, whether they would be able to get all their funds out, and whether they would have access to their credit lines.
More than 95% of the bank's deposits were uninsured as of December, according to regulatory filings.
Silicon Valley Bank financed startups around the world. The bank was present in nine countries - the U.S., Canada, India, China, Denmark, Sweden, Israel, Germany and the UK.
In the United Kingdom, Silicon Valley Bank UK has just been sold to banking giant HSBC for £1, the British government and the buyer said. British authorities have assured that Silicon Valley Bank UK depositors will be protected and will have access to their accounts beginning March 13.
"The assets and liabilities of the parent companies of SVB UK are excluded from the transaction," HSBC said in a statement, adding that the transaction closed "immediately."
As of March 10, 2023, SVB UK had loans of around £5.5 billion (US$6.65 billion) and deposits of around £6.7 billion. For the financial year ended Dec. 31, SVB UK recorded a profit before tax of £88 million ($106.5 million). SVB UK’s tangible equity is expected to be around £1.4 billion, HSBC said.
No Taxpayer Money Is Involved in UK Deal
"Today the government and the Bank of England have facilitated a private sale of Silicon Valley Bank UK; this ensures customer deposits are protected and can bank as normal, with no taxpayer support. I am pleased we have reached a resolution in such short order," UK Chancellor Jeremy Hunt said in a statement.
The former UK subsidiary of Silicon Valley Bank immediately announced that it had resumed normal operations.
"Following the announcement that @HSBC_UK has acquired SVB UK, we're resuming normal operations from today. Our clients should not notice any significant changes, however, there may be short delays across the next few days as we return to business as usual," the firm announced on Twitter.
In the U.S. regulators unveiled a contingency plan on March 12 guaranteeing deposits from all SVB customers. They also opened a backstop for banks to avoid a liquidity crisis in the event of bank runs.
