The UK government is working urgently on a plan to prevent UK tech firms from running out of cash after the collapse of Silicon Valley Bank. The Treasury aims to minimise the impact of the failure on promising companies.
Without intervention, firms could start experiencing problems on Monday morning. US regulators shut down the lender on Friday, marking the largest failure of a US bank since 2008.
Prime Minister Rishi Sunak, Chancellor Jeremy Hunt and Bank of England Governor Andrew Bailey are working on a solution to the issue.
According to Mr. Hunt, even though there is no danger to the UK’s overall financial system, some of the most promising technology and life science companies are at risk.
He said these companies are vital to the UK’s future and the government is working on a solution to minimize or avoid losses to these firms, but he could not guarantee that they would recover all of their funds.
He said the government is working quickly to devise a plan that would allow businesses to meet their cash needs “within the next few days.” Mr. Hunt stated that this strategy would enable firms to pay their workers.
However, Labour’s shadow chancellor, Rachel Reeves, argued that firms urgently require more information on how the government plans to assist them.
She said start-ups need to pay wages and suppliers and may be under pressure due to falling share prices or investors losing confidence. Ms. Reeves urged the government to provide assurances or cooperate with the US government on a bank rescue plan.
When asked whether the government will have a solution in place by the time the markets open on Monday.
On Saturday, over 200 leaders of British technology firms signed a letter addressed to Mr Hunt expressing their concerns and requesting government intervention. The letter, issued by Fintech Founders, stated that many fintech companies relied solely on SVB for banking services and would go bankrupt soon without preventative measures.
The letter added that these firms played a vital role in the British economy and served millions of people in the UK, and urged the government to take action to prevent the collapse of these promising companies.
Toby Mather, CEO of Lingumi, an education technology start-up, expressed concern that 85% of his company’s cash was held in Silicon Valley Bank, and the collapse was an existential threat as he needed to pay his employees.
At least 200 UK tech firms employing tens of thousands of people are expected to find themselves unable to pay their staff or suppliers, one anonymous source said, while between 30% and 40% of UK start-ups, employing up to 50,000 people, could be affected by the bank’s collapse.
Michael Moore, Director General of the British Private Equity and Venture Capital Association, called for urgent help for affected tech firms and entrepreneurs.
The bank failed in the US after it was unable to raise $2.25bn to cover losses from the sale of assets affected by higher interest rates, leading to a run on the bank in the US and sparking investor fears about the banking sector.
US Treasury Secretary Janet Yellen said she was not considering a bailout but was working with regulators to protect depositors.
Silicon Valley Bank specialized in lending to early-stage businesses, serving nearly half of US venture-backed technology and healthcare companies that went public last year.
The bank, which began as a California-based institution in 1983, has expanded rapidly over the past decade, with over 8,500 employees globally and most of its operations in the US. However, higher interest rates have made it challenging for start-ups to raise funds through private fundraising or share sales, leading to more clients withdrawing deposits, a trend that accelerated last week.
Silicon Valley Bank UK, which has ceased payments and deposits, is expected to enter insolvency on Sunday evening.
Nonetheless, Treasury permanent secretary Nick Macpherson tweeted that the government committing to protect more than this would create a “serious moral hazard,” where depositors lack an incentive to guard against risk if they expect all losses to be covered in the event of a bank collapse.