American Regulators Intervened Due to the Collapse of SVB, British Subsidiary Acquired a New Owner

Last weekend, all eyes were on Silicon Valley Bank (SVB), specialized in lending to startups, but also the technology sector in general. After the extremely rapid collapse of what was once the most praised bank in the U.S., many are wondering whether the FED will risk causing greater financial stress through aggressive tightening of monetary policy as equivalent rates in the U.S. head towards the largest drop since Black Monday in 1987.

According to Hina, U.S. authorities urgently intervened on Sunday to protect the financial sector following SVB’s collapse. Emergency measures were initiated to strengthen confidence in the banking system after SVB’s failure nearly triggered a broader financial crisis.

After a dramatic weekend, regulators stated that clients of the failed bank would have access to all their deposits starting Monday and that they would allow banks access to emergency funds. The Federal Reserve also eased borrowing for banks in emergencies.

Intervention of the Authorities

The collapse of SVB has also raised concerns about payroll payments in small and medium-sized enterprises, but Treasury Secretary Janet Yellen, FED Chairman Jerome Powell, and FDIC Chairman Martin Gruenberg sought to calm the chaos currently prevailing by announcing in a statement on Sunday evening that deposits would be paid out to everyone.

Although the measures on Monday provided relief to the technology sector, concerns about broader banking risks remain and cast doubt on whether the FED will stick to its plan for aggressive interest rate hikes, especially since New York’s Signature Bank, which had also been under pressure in recent days, was closed alongside SVB.

Bank stocks globally felt the repercussions of SVB’s fall, and the intervention of the Biden administration highlights how the relentless campaign of the FED and other major central banks to curb inflation is creating stress both in the financial system and on global markets.

SVB, until now a mainstay of the global startup ecosystem, was a product of decades-long era of cheap money with risks that made it particularly vulnerable, and other regional banks with similar characteristics now fear its fate.

As the Fed is poised to continue raising interest rates, investors say the financial system may not yet be fully secure. Analysts at Goldman Sachs told Reuters that they no longer expect the FED to raise interest rates by 25 basis points at its next meeting on March 21 and 22 amid stress in the banking sector.

The largest bank failure since 2008 has raised concerns about whether small businesses will be able to pay their staff, as the government FDIC only protects deposits up to $250,000. Approximately 89% of SVB’s deposits of $175 billion were uninsured by the end of 2022, according to the FDIC. However, the intervention of the authorities should save them.

HSBC Acquires British Subsidiary

A senior official from the U.S. Treasury told Reuters that the measures taken will protect depositors and provide additional support to the broader banking system, but officials and regulators continue to monitor the stability of the financial system. The risk should be borne by the Deposit Insurance Fund, which they claim has sufficient resources for this. Signature Bank shares the same fate as SVB, which U.S. authorities closed this weekend.

The FED announced that it would make additional funding available through a new Bank Term Funding Program, which would offer loans of up to one year to deposit institutions, backed by treasury and other assets held by those institutions. Over the weekend, discussions were also held at SVB’s branch in the UK, where the government and the Bank of England found a solution to prevent the local lender’s collapse.

In a move reminiscent of the financial crisis era, early Monday in London, British bank HSBC announced that it is acquiring Silicon Valley Bank UK for one pound. It was reported that the subsidiary had loans of about £5.5 billion and deposits of about £6.7 billion as of March 10.

While SVB UK is small – HSBC’s balance sheet exceeds $2.9 trillion – concerns that SVB’s failure could cause a slowdown in the British startup scene prompted calls from the sector for the government to intervene. British startups backed by venture capital have about £2.5 billion, mostly in deposits, ‘locked’ in SVB UK, according to a survey conducted by an industry body over the weekend, as reported by Reuters.

The British subsidiary commented on everything on Twitter, stating that they continue with their normal operations and that clients will not notice significant changes.

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