British tech companies are at “serious risk” from the collapse of Silicon Valley Bank UK, the Chancellor warned, as he vowed the government would “do everything we can” to protect them.
Jeremy Hunt said he held talks with Prime Minister Rishi Sunak and Bank of England Governor Andrew Bailey over the weekend and “we are working flat out to find a solution”.
He said the plan will meet the cash flow needs of companies hit by the implosion of the bank, a lender to “some of our most promising and exciting businesses.”
Mr Sunak told reporters accompanying him to the US that the government recognizes the “fears and concerns of the bank’s customers” and “ensure we can work to find a solution that improves operational liquidity and cash flow.” – secures the needs of the people”.
Labor warned that Britain’s start-up industry should not “pay the price” for the bank’s failure and urged the government to say more than “warm words” to those affected.
The Bank of England announced on Friday that Silicon Valley Bank UK will file for bankruptcy following the collapse of its parent company in the US – the biggest bank failure since the 2008 financial crisis.
While there is no risk to the UK financial system as a whole, Mr Hunt said “there is serious risk to our technology and life sciences sectors, many of which work with this bank”.
Speaking on political broadcasts on Sunday morning, he said: “The Prime Minister and I, as well as the Governor of the Bank of England, are absolutely determined to do everything in our power to protect the future of these very, very important companies.
“We want to find a way that minimizes or, if possible, avoids any losses for these incredibly promising companies.
“We will come up with a plan very quickly to ensure they can meet their operational cash flow needs.”
The Chancellor declined to say whether the government will guarantee 100% of companies’ deposits with the lender or whether that could mean stepping in with taxpayers’ money.
Shadow Chancellor Rachel Reeves stressed the urgency of the situation, noting that when the market opens on Monday, many companies will not know if they can pay employees or suppliers.
She said: “We need to hear from the government tomorrow morning on how they are going to protect them. There are different answers as to whether this is guaranteed, whether the US government is working to rescue the Silicon Valley Bank.
“We cannot allow the UK start-up community to pay the price for this bankruptcy because ultimately the UK economy will pay the price.
“I would urge the government to do more than just make warm words, but come up with concrete plans.”
Mr Sunak reiterated that the government “does not believe there is a systemic risk of contagion” as he refused to “enter speculation” when he pressed on whether an emergency deposit-covering scheme would be considered.
The Prime Minister, who was updated on the situation by the Chancellor during his flight to San Diego, supported the Bank of England governor and said “yes” when asked whether Mr Bailey oversees a robust regulatory environment for UK banks .
The BVCA, the industry body representing venture capital (VC) funds holding thousands of investments in UK technology and science companies, said long-term support was needed to protect the country’s innovators, entrepreneurs and financiers.
BVCA Director General Michael Moore said: “The immediate implications for technology and the broader private capital ecosystem are far-reaching. There are many highly qualified jobs at stake here.”
A survey of 31 VC funds found that 34% of their portfolio companies — 336 in total — have accounts with Silicon Valley Bank. More than 200 of them are now exposed to short or long-term cash flow risks.
The total amount tied up by these firms at Silicon Valley Bank is around £2.5 billion, according to the data.
Tech industry officials were convened for an emergency roundtable with Treasury Secretary Andrew Griffith on Saturday.
Silicon Valley Bank was placed under US government control on Friday after being hit by a capital crisis and bank run.
The Bank of England responded by sending its UK subsidiary – the first location it opened outside the US – into bankruptcy from Sunday night, putting the companies at risk of losing almost all their cash.
It has stopped making payments and accepting deposits. Up to £85,000 of individual customers’ deposits are protected by the UK’s deposit guarantee scheme, meaning many face huge losses without government intervention.
US Treasury Secretary Janet Yellen said she was working with regulators to protect US depositors but ruled out a major bailout.