Money held by SVB UK clients safe, thanks to HSBC
The shutdown on Friday of Silicon Valley Bank (SVB) – a major backer of biotech companies – will not leave any US customers out of pocket, according to the federal government.
A statement from the US Treasury, the Federal Reserve, and Federal Deposit Insurance Corporation (FDIC) said depositors would be fully protected, and also that taxpayers would not be asked to cover the bank’s losses. A deposit insurance fund that is paid into by US banks will be used to cover the costs.
The swift response by the US government put pressure on the UK government to do the same for customers of the bank’s subsidiary SVB UK, which handles around £7 billion (approximately $8.5 billion) in funds and was on the cusp of being placed into insolvency by the Bank of England.
It has just been announced that HSBC has agreed to take control of SVB, coming in as a “white knight” buyer who will underwrite the bank's business in the UK. The UK government was keen on a takeover as a solution to the problem, rather than relying on the public purse.
On Friday, SVB was shut down by regulators in the US after customers started withdrawing funds at a catastrophic rate, pulling out billions of dollars in a matter of hours after news emerged that it was struggling to plug a massive gap in its finances, reportedly triggered by higher interest rates and a downturn in the tech and biotech sectors.
One biotech affected by the collapse, Pharming of the Netherlands, said yesterday that it held around $26 million and $19 million respectively in the US and UK arms of SVB, out of total reserves of around $209 million.
Its US deposits are “largely uninsured”, while those in the UK far exceed the £85,000 threshold for protection laid down in national legislation. The biotech said it was confident in its ability to keep operating and meet its financial commitments, but indicated that it was unclear whether it will be able to recover its deposits. Today, it said it expected to have access to all its funds in both accounts.
There has been some speculation about the ability of non-US depositors to get protection under the federal scheme, but the US government’s statement specifies that “all depositors” are covered and will be able to access their money from today.
Deposits of up to $250,000 are federally insured, but the US government has effectively changed the rules for SVB, leading to criticism by political opponents that it could incentivise risk-taking by banks and their customers.
The Federal Reserve has said it will offer assistance through a newly set up Bank Term Funding Programme, which is designed to make it easier for troubled banks to borrow funds.