British tech companies are at “serious risk” from the collapse of the UK arm of Silicon Valley Bank, Chancellor Jeremy Hunt has warned.
Rishi Sunak and the chancellor held emergency talks with the governor of the Bank of England, Andrew Bailey, over the weekend to come up with a cash bailout for affected businesses as the bank moves into insolvency.
Hunt said the government was “working at pace” to limit the damage and would come up with a plan to help the bank’s customers’ “cashflow” needs in the UK.
“The Bank of England has made it very clear that there is no systemic risk to our financial system,” he told Sky News. Sophy Ridge on Sunday. “But there is a serious risk to our technology and life sciences sectors.”
Mr Hunt added: “We are working at pace on a solution, we will be putting forward plans very soon to ensure that people are able to meet their cash flow requirements, pay their staff.”
Labour’s shadow chancellor, Rachel Reeves, called on Mr Hunt to give more than “warm words” to businesses – and demanded the chancellor come up with a plan before markets open on Monday.
She told Sky News: “When the markets open tomorrow morning, a lot of businesses in the UK will not be clear about how they can pay their staff and whether their deposits with Silicon Valley Bank and their funding arrangements are still in place. .”
Hunt said she was “a bit concerned” by the level of urgency Mr Hunt was showing, adding: “I would urge the Government to do more than just make warm words, but come up with specific plans.”
It comes as CEOs of 140 leading UK startups wrote to Mr. Hunt on Saturday and called for emergency aid from the government.
“This weekend, most of us tech founders are running the numbers to see if we’re potentially technically insolvent.
“The impact of this is far greater than our individual companies. The Bank of England’s assessment that SVB going into insolvency will have limited impact on the UK economy shows a dangerous lack of understanding of the sector and the role it plays in the wider economy, both today and in the future.”
“Most companies operate on very fine margins in the current economy, and the contagion from the initial insolvencies will be huge and affect the economy far beyond the technology sector.”
Sir. Sunak – speaking to reporters accompanying him to the US – said the government does not “believe there is a systemic risk of contagion”. The Prime Minister declined to “start speculating” when pressed on whether an emergency deposit cover scheme was being considered.
The Bank of England announced on Friday that Silicon Valley Bank UK is set to enter insolvency, following action by its parent company in the US. SVBUK said it will be placed into insolvency from Sunday evening.
Although SVB has a limited presence in the UK and does not perform functions critical to the financial system, its collapse could have a significant impact on tech start-ups.
In a statement issued on Sunday morning, the Treasury said it was treating the issue “as a high priority” and said the government was “working at pace on a solution to avoid or minimize damage to some of our most promising businesses in the UK”.
The Treasury said it would put forward immediate plans to ensure “the short-term operational and cash flow needs of Silicon Valley Bank UK customers can be met.”
It added that the government recognizes that the bank’s failure “could have a significant impact on the liquidity of the technology ecosystem”.
Asked if the government would use taxpayers’ money to provide support, Mr Hunt said he did not “want to get into what the solution is”. The chancellor said he wanted to find “a long-term solution that minimizes or even completely avoids losses for some of our most promising companies”.
Sir. Sunak said the government recognizes “the anxiety and the concerns that the bank’s customers have” and is “making sure that we can work to find a solution that secures people’s operational liquidity and cash flow needs”.
The prime minister backed the Bank of England governor, saying “yes” when asked if Mr Bailey is overseeing a robust regulatory environment for UK banks.
Former Tory chancellor Philip Hammond said the Bank of England would have to provide “some significant and additional liquidity to whoever buys the SVP”.
He said it was vital to act to protect the UK’s growing fintech sector. “This is a very important dynamic sector and we don’t want to see it suffer a massive own goal here.”
The bankruptcy announcement came after SVB was placed under US government control on Friday afternoon in the biggest failure of a US bank since the 2008 financial crisis.
The Bank of England said the company will stop making payments and accepting deposits. The move will allow depositors to be paid out up to £85,000 from the deposit insurance scheme.
The US government was expected to make a “significant” announcement on Sunday to support deposits at Silicon Valley Bank and prevent wider fallout, sources familiar with the matter told Reuters.
Joe Biden administration officials worked through the weekend to assess the fallout from the dramatic bank collapse, the biggest since the 2008 financial crisis, with a particular eye on the venture capital sector and regional banks, the sources said early Sunday.