Leading tech lender Silicon Valley Bank UK has issued a statement in response to growing fears coming out of the United States.
On Friday regulators took over California-based Silicon Valley Bank, which has seen its share price plummet in the last 24 hours as the financial markets became increasingly nervous.
A statement on the Federal Deposit Insurance Corporation’s website said: “Silicon Valley Bank, Santa Clara, California, was closed today by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver.
“To protect insured depositors, the FDIC created the Deposit Insurance National Bank of Santa Clara (DINB). At the time of closing, the FDIC as receiver immediately transferred to the DINB all insured deposits of Silicon Valley Bank.
“All insured depositors will have full access to their insured deposits no later than Monday morning, March 13, 2023. The FDIC will pay uninsured depositors an advance dividend within the next week. Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds. As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors.”
In response to the growing concerns, Silicon Valley Bank UK issued its own statement stressing it was as ‘standalone independent UK regulated bank’.
The statement read: “Silicon Valley Bank UK, the financial partner of the innovation economy, today moved to confirm to its UK clients, partners and external stakeholders its financial position as a standalone independent banking institution that is regulated and governed by the PRA in the UK.
“Silicon Valley Bank UK has been an independent subsidiary since August 2022 with a separate balance sheet to the SVB Financial Group and an independent UK Board of directors.
“Silicon Valley Bank UK fully abides by the UK regulatory requirements as covered by the Financial Services Compensation Scheme and by the Financial Ombudsman Service. SVB UK, Ltd. is ring-fenced from the parent and its other subsidiaries.”
Erin Platts (pictured), CEO and head of EMEA, said: “As a reminder, Silicon Valley Bank UK is a standalone entity with its own balance sheet and governance structure. SVB has supported investors and innovators for 40 years and we have been so humbled with the consistent drum of support coming from our UK investor and founder community in last few days. We appreciate that this is a concerning time for our clients so we are working tirelessly to support them and give more context.”
Silicon Valley Bank UK specialises in backing technology, life science and healthcare companies.
RBC Brewin Dolphin, which is one of the largest British wealth management firms, has given its assessment on what’s happened.
“Like all banks, SVB makes money by borrowing over short periods and lending over longer ones in order to achieve an interest rate margin,” it said on LinkedIn.
“Its short-term borrowing is deposits from Silicon Valley-based technology companies that are funded by venture capitalists.
“These doubled during 2021. In order to generate a return on these, SVB invested in the highest-quality loan assets, such as US agency mortgage-backed securities (MBS).
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“Whilst MBS sound concerning given their role in the financial crisis, these securities do not represent a solvency risk. However, they did fall in value as interest rates rose. Furthermore, banks have been forced to raise the rates they pay on deposits in order to avoid customers moving their deposits.
“The specific challenge that SVB faced was that it was forced to sell high-quality loan assets in order to be liquid enough to meet deposits.
“In doing so, it crystalised a loss which it then needed to repair through a sale of shares. SVB has a particularly volatile deposit base so if their bank looks weak, the rational thing is for them to panic early. Venture capitalists encouraged this behaviour by suggesting depositors start looking for safer homes for their cash.
“Although the challenges do seem quite contained, banks (which are quite a heavily owned sector as investors hunt for beneficiaries of a rising interest rate environment) sold off in sympathy.
“As interest rates have risen, banks have become more limited in their ability to capture all of their excess returns as margin.
“Higher rates have seen depositors shopping for higher rates or for alternative homes for their cash. The higher rates go, the more thought depositors will put into the value they are receiving from banks. Now, markets are not just worried about the impact of a potential recession on banks, but also on the prospect of shrinking net interest margins.”
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