An internationally coordinated effort between the US and UK governments has resulted in the sale of a subsidiary of Silicon Valley Bank, after the Santa Clara, California-based bank collapsed on Friday. Silicon Valley Bank is a financial institution with over $200 billion in assets.
HSBC said it will buy Silicon Valley Bank UK Ltd for one pound, after both governments tried to find a bigger bank to buy it to secure the 6.7 billion pound ($8.1 billion) deposits.
The UK Treasury and the Bank of England were “facilitating the sale”, according to Chancellor of the Exchequer Jeremy Hunt.
“This morning the Government and the Bank of England facilitated a private sale of Silicon Valley Bank UK to HSBC,” Hunt said in an early Monday morning tweet.
BIDEN ‘THANKS’ WITH FEDS’ RESPONSE ON SILICON VALLEY BANK COLLAPSE, TO BE HEADED SOON BY DEPOSITS AND CLOSURE
“Deposits will be protected, without taxpayer support. I said yesterday we would look after our technology sector and we have worked urgently to deliver on that promise,” said the MP for South West Surrey.
British and American officials worked through the weekend to find buyers for the bank and its subsidiaries, whose collapse was the second-largest bank failure in history.
While UK authorities have successfully sold the subsidiary, US regulators have so far failed to do the same, at least publicly. The Federal Deposit Insurance Corporation (FDIC) took over SVB on Friday when the bank closed.
The FDIC then held an auction with the Treasury Department on Saturday, but it is unclear when the results of the auction will be released.
Separately, the Treasury Department, the Federal Reserve and the FDIC announced additional measures on Sunday to avert a potential financial crisis.
Shortly after the collapse of SVB on Friday – the second largest in US history behind the collapse of Washington Mutual in 2008 – New York-based Signature Bank collapsed on Sunday. This is the third largest bank failure in US history.
HOW THE SILICON VALLEY BANK BURNED
In an effort to boost confidence in the banking system, regulators said all depositors in the failed institutions, Silicon Valley Bank and Signature Bank, would be protected and ensure that all their money, including those whose holdings exceed the $250,000 insurance limit, will be accessed on Monday.
They also announced measures aimed at protecting the bank’s customers and preventing additional bank runs.
“This step will ensure that the U.S. banking system continues to perform its vital role of protecting deposits and providing access to credit to households and businesses in a way that promotes strong and sustainable economic growth,” the agencies said in a joint statement.
Analysts said the Fed’s new actions should be enough to calm financial markets.
“Monday will certainly be a stressful day for many in the regional banking sector, but today’s action dramatically reduces the risk of further contagion,” forecast economists at investment bank Jefferies.
SILICON VALLEY BANK IS CLOSED BY REGULATORY AUTHORITIES
Sunday’s actions are the most extensive government intervention in the banking system since the 2008 financial crisis, though much smaller in scope and impact.
Taxpayers’ money will not be provided to maintain deposits, the government said.
President Joe Biden said Sunday afternoon, as he boarded Air Force One back to Washington, that he responded directly to Monday’s bank failures.
He also said the federal government is “firmly committed to holding those fully responsible for this mess and continuing our efforts to strengthen supervision and regulation of the biggest banks so we don’t find ourselves in this position again.”
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SVB began its slide into insolvency when clients, mainly technology companies, rushed to get cash financing and withdrew their deposits.
The bank was forced to sell bonds at a loss to cover the withdrawals, and regulators were soon forced to take action.
The Associated Press contributed to this report