Tuesday, March 21, 2023

On Friday, the US government said no to Silicon Valley Bank (SVB) and then the British government followed suit by closing its UK branch of the bank. They want to put it into a special process called insolvency.

Silicon Valley Bank

The biggest bank in the United States is facing some big issues. On Wednesday, Silicon Valley Bank closed down due to an action taken by the Federal Deposit Insurance Corporation and California’s Department of Financial Protection and Innovation. Then on Thursday customers tried taking out $42 billion which caused even more chaos.

Something went wrong with the company SVB and it affected its U.K. branch, so the Bank of England had to shut it down. On Saturday, some venture capital funds in the U.K showed support for SVB’s U.K. office by sharing a statement on their Twitter account.

The Bank of England has said that Silicon Valley’s U.K. branch won’t accept any more money and it will stop processing payments too. This means the Bank of England wants to close the branch and put it into “bank insolvency procedure”. If this happens, people who had deposited money will be refunded up to £85,000 (or up to £170,000 for joint accounts), which is the limit stated by a body called the FSCS.

Susannah Streeter who is responsible for money and markets at Hargreaves Lansdown sent a message saying that their U.K. branch will not be successful.

Mr. Streeter said that it seemed likely that SVB’s U.K arm would become broke too because a lot of people were trying to withdraw their money from there. This happened even despite people being told the British branch was separate from the main bank in the U.S. But when officials in America halted all activities with the parent company, suddenly more people began taking out their money which posed a huge risk to the British branch as well.

The Bank of England said on Friday that the British branch of Silicon Valley Bank will be broken up and its assets and debts will be taken care of by people in charge. They also said that the bank has a small presence in Britain, so there won’t be much impact to the money system. An analyst from Hargreaves Lansdown suggested that it might take more time for banks to put in price hikes since the collapse of SVB.

The increase in rates has taken the sector by surprise and the Federal Reserve wants to keep increasing them. This issue is being watched carefully, so that nothing else gets damaged with further rate rises.

What do you think will happen in banking in the future, both here and around the world? Let us know your thoughts on this matter!

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