On 13 March 2023, HSBC, a British financial services company, purchased Silicon Valley Bank U.K. for £1, excluding assets and liabilities. Three days before this deal, the California Department of Financial Protection and Innovation closed the SVB, an infamous commercial bank dubbed as a “Twitter-led bank run”, known for investing in risky technology startups.
To combat inflation, the Federal Reserve Bank increased interest rates for financial institutions. As money became expensive, investors in technology startups became more risk-averse, creating a problem for Silicon Valley Bank’s liquidity. In addition, the high-interest rates deterred the public from buying tech shares, a high-risk investment. This resulted in Silicon Valley Bank clients withdrawing money to meet their liquidity needs, leaving the bank no way to stay afloat. As of Friday, SVB U.K. in particular, had loans of £5.5 billion and deposits of £6.7 billion, with a measly £88 million of profit from 2022, before tax.
Aside from the central bank’s interest rates, the collapsing cryptocurrency industry; one of SVB’s founders, Sam Bankman-Fried, getting arrested; and layoffs in the unsurprisingly automated tech industry led to the fall of the Silicon Valley Bank.
The bank’s UK branch, however, seems to be in good hands. Reassuring SVB’s British clients, the U.K. Treasury promised to protect their deposits. The CEO of HSBC, Noel Quinn, spoke of the acquisition in a positive light: “[it] strengthens our commercial banking franchise and enhances our ability to serve innovative and fast-growing firms, including in the technology and life-science sectors, in the U.K. and internationally”.
The negotiations for HSBC to take over the UK branch of SVB lasted all of last night, and ultimately, put an end to the American bank’s legacy of 40 years. While the Federal Deposit Insurance Corporation said that insured depositors with at least $250,000 in their account may access their money, the majority of deposits were uninsured.
In one of the largest bank failures in history, Silicon Valley Bank’s customers, investors, and bankers await news from U.S. regulators on the burning question, “what now?”.
