UK tech companies are at “serious risk” from the collapse of the British arm of Silicon Valley Bank, chancellor Jeremy Hunt has warned.
Rishi Sunak and the chancellor have held emergency talks with the governor of the Bank of England Andrew Bailey this weekend to com up with a cash lifeline for affected firms as the bank goes into insolvency.
Mr Hunt said the government was “working at pace” to limit the damage and would come up with a plan to help the “cashflow” needs of the bank’s customers in the UK.
The Bank of England has made it very clear there is no systemic risk to our financial system” he told Sky News’ Sophy Ridge on Sunday. “But there is a serious risk to our technology and life sciences sectors.”
Mr Hunt added: “We are working at pace on a solution we will bring forward very soon plans to make sure people are able to meet their cashflow requirements, pay their staff.”
Labour’s shadow chancellor Rachel Reeves urged Mr Hunt to offer more than “warm words” to companies – demanding the chancellor comes up with a plan by the time markets open on Monday.
She told Sky News: “When markets open tomorrow morning, a lot of businesses in the UK are not going to be clear about how they can pay the wages of their staff and whether their deposits with Silicon Valley Bank and their financing arrangements are still in place.”
Saying she was “slightly concerned” by the level of urgency shown by Mr Hunt, she added: “I would urge the government to do more than offer warm words, but come forward with specific plans.”
Mr Sunak – speaking to reporters accompanying him to the US – said the government does not “believe there is a systemic contagion risk”. The PM declined to “get into speculating” when pressed on whether an emergency scheme to cover deposits is being considered.
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 US. SVBUK said it will be put into insolvency from Sunday evening.
While SVB has a limited presence in the UK and does not perform functions critical to the financial system, its collapse could have a significant impact on tech start-ups.
In a statement issued on Sunday morning, the Treasury said it is treating the issue “as a high priority” and said the government was “working at pace on a solution to avoid or minimise damage to some of our most promising companies in the UK”.
The Treasury said it would bring forward immediate plans to ensure “the short-term operational and cashflow needs of Silicon Valley Bank UK customers are able to be met.”
It added that the government recognises that the bank’s failure “could have a significant impact on the liquidity of the tech ecosystem”.
Asked if the government would use taxpayers’ money to provide support, Mr Hunt said he did not “want to go into what the solution is”. The chancellor said he wanted to find “a longer-term solution that minimises or even avoids completely losses to some of our most promising companies”.
Mr Sunak 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”.
The PM backed the Bank of England governor, saying “yes” when asked if Mr Bailey is overseeing a robust regulatory environment for UK banks.
Former Tory chancellor Philip Hammond said the Bank of England would have to provide “some significant and additional liquidity to whoever buys SVP”.
He said it was vital to act to protect Britain’s growing fintech sector. “This is a very important dynamic sector and we don’t want to see it suffer a massive own goal here.”
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. The move will allow depositors to be paid up to £85,000 from the deposit insurance scheme.
The US government was expected to make a “material” announcement on Sunday to shore up deposits in Silicon Valley Bank and prevent wider fallout, sources familiar with matter told Reuters.
Joe Biden administration officials worked through the weekend to assess the fallout of the dramatic bank failure, the biggest since the financial crisis of 2008, with a particular eye on the venture capital sector and regional banks, the sources said early on Sunday.