After US regulators shut down Silicon Valley Bank (SVB) on Friday, the Bank of England closed the company’s UK division. The central bank explained that it intends to place the subsidiary in bank insolvency proceedings.
Fallout from SVB failure causes BOE to close UK branch
The ripple effect of the bankruptcy of the 16th largest bank in the United States began to unwind after Silicon Valley Bank (SVB) was closed by the United States Federal Deposit Insurance Corporation (FDIC) and the Department of Protection and California Financial Innovation (DFPI). California DFPI explained The chaos at SVB began on Wednesday and on Thursday, customers tried to withdraw $42 billion in deposits via wire transfers.
The SVB bankruptcy has now moved abroad and affected the company’s UK subsidiary, prompting the Bank of England to step in and shut it down. On Saturday, the official SVB UK Twitter page retweeted a joint statement from a variety of UK venture capital funds backing the UK branch.
The Bank of England (BOE) saying The Silicon Valley UK branch will stop processing payments and will no longer accept deposits. “The Bank of England, in the absence of any further significant information, intends to apply to the court to place Silicon Valley Bank UK Ltd. in bank insolvency proceedings,” the BOE statement read. “A bank insolvency proceeding would mean the FSCS pays out eligible depositors as quickly as possible, up to the protected limit of £85,000, or up to £170,000 for joint accounts.”
In a note sent to Bitcoin.com News, Susannah Streeter, director of money and markets at Hargreaves Lansdown, said that the SVB UK arm was doomed.
“It seemed inevitable that the dramatic loss of confidence in SVB would also drag its British arm into insolvency,” Streeter said. “The run on the US bank scared off customers who bank with the UK subsidiary, despite protests that it was shielded from its parent. Once US regulators stepped in to ground the mothership, attempts to withdraw deposits intensified, putting the bank in a very precarious position,” added the market analyst.
The BOE statement on Friday said the UK Silicon Valley branch will see its other assets and liabilities handled by liquidators, with recoveries distributed to creditors that way. “(Silicon Valley Bank UK) has a limited presence in the UK and does not have critical functions supporting the financial system,” the BOE statement emphasized. The Hargreaves Lansdown analyst explained that the central bank’s rate hikes can be looked at more closely before other financial failures follow the SVB collapse.
“It is clear that rapid rate escalation has taken the sector by surprise and the Fed’s determination to continue raising rates has brought new concerns,” Streeter concluded. “Policymakers will now be monitoring this turn of events very closely, and are now more likely to be more careful with further rate hikes, to make sure nothing else is badly broken.”
What do you think this event means for the future of banking stability, both in the US and abroad? Share your thoughts in the comments section below.
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