Jeremy Hunt vows to protect tech jobs with bailout as Silicon Valley bank collapses
JEREMY Hunt has vowed to protect thousands of tech jobs with a bailout — as fears of a bank run risked derailing Budget week.
The Chancellor and PM Rishi Sunak pledged to do “whatever it takes” to protect hundreds of firms which face not being able to pay staff.
It followed the collapse last week of the Silicon Valley Bank (SVB) in the US and the subsequent failure of its UK arm in which many British firms hold cash reserves.
Mr Sunak, Treasury staff and Bank of England chief Andrew Bailey held talks over the weekend to try to find a solution following what was the biggest banking failure since the 2008 financial crash.
It came amid fears smaller banks could suffer similar runs when they open for business this morning.
Ministers are concerned about the “serious risk” to technology and life sciences firms.
Mr Sunak was flying to California last night and was understood to have been in “constant contact with Mr Hunt over SVB UK” during the 14-hour journey.
In an effort to calm the public’s concerns, he told reporters there was no “systemic contagion risk” to the UK’s financial systems from the bank’s collapse.
Mr Sunak, who was heading to San Diego to meet US President Joe Biden, declined to be drawn on precise details — but suggested reports of a UK emergency fund were “speculation”.
Mr Hunt, meanwhile, said: “We want to find a way that minimises or, if we possibly can, avoids all losses to those incredibly promising companies.”
He told the BBC: “What we will do is bring forward very quickly a plan to make sure that they can meet their operational cash flow requirements.”
Britain’s biggest high street banks, including Barclays and Lloyds, have been given 24 hours to offer a rescue plan for SVB UK.
Meanwhile, OakNorth Bank, founded by ex-Tory donor Rishi Khosla, was in talks to buy SVB UK, it was reported last night.
Estimates suggest between 30 and 40 percent of UK start-up firms employing up to 50,000 people could be hit by knock-on effects of the collapse.
Some 200 firms employing tens of thousands, may not be able to pay staff or suppliers as they have an account with the bank.
UK depositors are only guaranteed to receive up to £85,000 under the Financial Services Compensation Scheme.
It means the start-up sector could face losses of £7billion.
Fintech Founders, a network of the UK’s leading fintech groups, said many firms will “go into receivership imminently unless preventative action is taken”.
SVB UK has stopped taking deposits or making payments ahead of entering insolvency.
The decision was taken after SVB in America, whose chairman is Greg Becker, was put under government control late on Friday after it failed to raise £1.9billion to bridge losses from the sale of assets.
Eileen Burbidge, the Treasury’s special envoy for fintech, said: “The impact of the SVB UK bank closure and lack of access for depositors’ funds is tremendous — not just for a single tech ecosystem but for British industry more broadly which is now almost entirely tech-enabled for everything from employee management, payroll, payments, processing, products and services delivery.
“Even if companies aren’t directly exposed, they are most certainly indirectly exposed and affected through their supply chain or partners and access to customers.”
Shadow Chancellor Rachel Reeves said: “We cannot let the British start-up community pay the price for this bank failure, because it will be the British economy then that ultimately pays the price.”
The prospect of dealing with the bank fall-out looked like over-shadowing Mr Hunt’s first Budget on Wednesday.
Q&A: Silicon Valley Bank collapse
Q: WHAT was Silicon Valley Bank?
A: Founded in California in 1983, it specialised in lending money to tech start-ups and they served nearly half of all US venture-backed tech and healthcare companies on the stock markets last year.
Q: How big was it?
A: It was the 16th-largest bank in the US employing more than 8,500 people.
Q: How does it affect the UK?
A: The UK branch of the bank was set to be put into insolvency by the Bank of England last night.
Q: How did crash start?
A: Silicon Valley Bank had been under pressure as higher interest rates made it harder for tech start-ups to raise money. More clients were withdrawing deposits which turned into a run on the bank last week. Regulators in the US shut down the lender on Friday.
Q: Is the problem likely to spread to the rest of the economy?
A: No. Chancellor Jeremy Hunt has said that there’s no risk to the UK’s financial system as a whole but there is a serious risk to some of our most promising companies in technology and life sciences.
Q: Who is at risk?
A: There are concerns some companies will not be able to access their deposits and funds to pay wages of their staff.