After US regulators shuttered Silicon Valley Bank (SVB) on Friday, the Bank of England shuttered the company’s UK branch. The central bank explained that it intended to place the subsidiary in bank insolvency proceedings.
Fallout from SVB failure prompts BOE to close UK branch
The ripple effect of the bankruptcy of the 16th largest bank in the United States began to dissipate after the closure of Silicon Valley Bank (SVB) by the United States Federal Deposit Insurance Corporation (FDIC) and the California Department of Financial Protection and Innovation (DFPI). California DFPI explain As the chaos at SVB began on Wednesday and Thursday, customers attempted to withdraw $42 billion in deposits via wire transfer.
SVB’s failure has now moved overseas and affected the company’s UK branch, prompting the Bank of England to step in and shut it down. Saturday, the official SVB UK Twitter page retweeted a joint statement from various UK venture capital funds supporting the UK branch.
The Bank of England (BOE) said The UK branch in Silicon Valley will stop processing payments and no longer accept deposits. “The Bank of England, in the absence of any other significant information, intends to seek a court order to place Silicon Valley Bank UK Ltd. in bank insolvency proceedings,” the BOE statement read. “A bank insolvency proceeding would mean that eligible depositors are paid by the FSCS as quickly as possible, up to the protected limit of £85,000, or up to £170,000 for joint accounts.”
In a memo sent to Bitcoin.com News, Susannah Streeter, Head of Currency and Markets at Hargreaves Lansdown, said the UK arm of SVB was doomed.
“It seemed inevitable that the dramatic loss of confidence in SVB would also drag its British arm into insolvency,” said Streeter. “The run on the US bank spooked customers who do business with the UK subsidiary, despite protests that it was isolated from its parent company. Once US regulators stepped in to ground the mothership, attempts to withdrawal of deposits have intensified, placing the bank in a very precarious position,” added the market analyst.
The BOE’s statement on Friday noted that the UK branch in Silicon Valley will have its other assets and liabilities managed by liquidators, and collections will be distributed to creditors in this way. “(Silicon Valley Bank UK) has a limited presence in the UK and no critical functions supporting the financial system,” the BOE statement stressed. The Hargreaves Lansdown analyst said central bank rate hikes may come under closer scrutiny before more financial failures follow the collapse of SVB.
“Clearly the rapid escalation in rates has taken the industry by surprise and the Fed’s determination to continue raising rates has raised further concerns,” Streeter concluded. “Policymakers will now be watching this turn of events very closely, and are now more likely to tread carefully with further rate hikes, to ensure that nothing else is seriously damaged.”
What do you think this event means for the future of banking stability, both in the United States and abroad? Share your thoughts in the comments section below.
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