Bank of England to close UK branch of Silicon Valley Bank after US regulators shut down parent company
After US regulators shut down Silicon Valley Bank (SVB) on Friday, the Bank of England has shut down the company’s UK-based arm. The central bank said it intends to place the subsidiary in bankruptcy proceedings.
Consequences of an SVB failure prompt BOE to close its UK branch
After the US Federal Deposit Insurance Corporation (FDIC) and the California Department of Financial Protection and Innovation (DFPI) shut down Silicon Valley Bank (SVB), the domino effect of the bankruptcy of the 16th largest bank in the United States began to weaken. California’s DFPI said the chaos at SVB began on Wednesday and through Thursday, customers were attempting to withdraw $42 billion in deposits via wire transfer.
SVB’s failure has now spread overseas, affecting the company’s UK subsidiary, prompting the Bank of England to step in and close it down. Saturday’s official SVB UK Twitter page retweeted a joint statement from various UK venture capital funds backing the UK branch.
The Bank of England (BOE) said the UK branch of Silicon Valley would stop processing payments and no longer accepting deposits. “The Bank of England intends, in the absence of any meaningful further information, to apply to the court to hold Silicon Valley Bank UK Ltd. into bankruptcy proceedings,” the BOE statement said. “Bank insolvency proceedings would mean eligible depositors being paid out by the FSCS as quickly as possible up to the protected limit of £85,000 or up to £170,000 for joint accounts.”
in one Bitcoin.com News, Hargreaves Lansdown’s Head of Money and Markets, Susannah Streeter, said the SVB UK branch was bound to fail.
“It seemed inevitable that the dramatic loss of confidence in SVB would also send its UK arm into bankruptcy,” Streeter said. “The run on the US bank scared off customers banking at the UK subsidiary, despite protests that it was shielded from its parent company. Attempts to withdraw deposits escalated when US regulators stepped in to nab the mothership, leaving the bank in an extremely precarious position,” the market analyst added.
Friday’s BOE statement said Silicon Valley’s UK branch’s other assets and liabilities are being held by insolvency practitioners and recoveries are distributed to creditors that way. “[Silicon Valley Bank U.K.] has a limited presence in the UK and no critical functions supporting the financial system,” stressed the BOE statement. The Hargreaves Lansdown analyst said rate hikes by the central bank could be more carefully scrutinized before more financial failures follow the SVB collapse.
“It is clear that the rapid escalation in interest rates has caught the sector by surprise and the Fed’s determination to continue raising rates has sparked new concerns,” Streeter concluded. “Policymakers will now be watching this turn of events very closely and will be more cautious about further rate hikes to ensure nothing else gets badly broken.”
What do you think this event means for the future of banking stability, both in the US and abroad? Do share your thoughts in the comment section below.
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Source: Crypto News Deutsch