Government responds on Silicon Valley UK rescue

The BoE and Government have responded to the Treasury Committee’s queries on the collapse and subsequent purchase by HSBC of Silicon Valley Bank UK.

  • BoE was asked how the bank was supervised before its collapse, how HSBC was chosen as a purchaser and what supervisory lessons can be learned. The response set out the state of the UK banking market, and addressed its supervisory approach. It noted that a key principle of PRA supervision is that it does not seek to operate a zero-failure regime, and explained the process followed when it required SVB to set up a UK subsidiary. PRA had recognised the concentration risk given the bank’s focus on tech companies and this was reflected in its capital requirements. It said the bank’s failure was a direct result of its parent’s failure and that it would not have been a viable stand-alone operation. It had had a stable balance sheet but experienced a deposit-run on 10 March far in excess of the outflows expected and putting the bank’s liquidity in doubt. PRA spoke to the relevant US regulators and decided to place SVB UK into insolvency on the basis it had no critical functions. At the time it considered this to be in the public interest, and reassessed when HSBC was identified as a purchaser with the result that it ultimately exercised its stabilisation powers. It had become clear there were a number of prospective purchasers and the regulators felt it important to resolve the matter urgently. All interested parties submitted bids and HSBC was ultimately selected. PRA feels the UK resolution regime worked as intended;
  • Treasury was asked who other support options the Government considered, the extent to which Treasury intervened in the resolution process in favour of a sale and whether it sought assurances from HSBC on its approach to the UK tech industry as a condition of the purchase.  Its response said that the BoE had ultimately decided a private sale was the better option, having regard to the circumstances and the regulatory objectives

Emma Radmore