Draft Amendments of the Law (Resolution of Silicon Valley Bank UK Limited) (No. 2) Order 2023

(Limited Text - Ministerial Extracts only)

Wednesday 7th June 2023 General Committees

[The Economic Secretary to the Treasury (Andrew Griffith)]

I beg to move,

That the Committee has considered the draft Amendments of the Law (Resolution of Silicon Valley Bank UK Limited) (No. 2) Order 2023.

It is a pleasure to serve under your chairmanship, Ms McVey. As hon. Members will be aware, Siliconâ Valley Bank UK Ltd—or SVB UK—was sold to HSBC on Monday 13 March. The aim of the sale was to ensure that customers of SVB UK could access their deposits and banking services as normal, limit risks to our tech and life sciences sector, and safeguard some of the UK’s most promising companies. We achieved those outcomes without any public money or Government guarantees. There was no bail-out; SVB UK was sold to a private sector purchaser. The solution was a win for taxpayers, customers and the stability of the banking system. The International Monetary Fund has said that the UK’s response to SVB UK restored market confidence and contributed to the UK’s upgraded growth forecast. It now expects the UK to avoid a recession this year.

On Monday 13 March, using powers under the Banking Act 2009, I laid in both Houses a statutory instrument to facilitate the sale of SVB UK to HSBC. That instrument, which has now been approved by both Houses, granted HSBC’s ringfenced bank an exemption so that it could provide liquidity on non-arm’s-length terms to SVB UK on an ongoing basis. That was needed to facilitate the sale of SVB UK to HSBC, because it ensured that HSBC could provide the necessary funds—over £2 billion in the days immediately afterwards—to its new subsidiary. The exemption also ensures that HSBC UK can provide liquidity to SVB UK as needed going forward.

This second statutory instrument provides an ongoing exemption from ringfencing requirements for SVB UK beyond the existing four-year transition period. That exemption is subject to conditions relating to the size of SVB UK’s core deposits and the type of business that it can undertake. The first condition is intended to ensure that SVB UK or its subsidiaries cannot hold core deposits, which are typically retail and small business deposits, above the existing threshold in the ringfencing regime, which is currently £25 billion.

The second and third conditions are intended to ensure that SVB UK or its subsidiaries will be allowed to undertake new business activities only if they are similar to those conducted by SVB UK at the time of the acquisition by HSBC. Those conditions are intended to ensure that the exemptions from the wider regime are limited to what is needed to facilitate the sale of SVB UK. Together, they minimise risks to financial stability and limit any competitive distortion.

Hon. Members will note that Sam Woods, deputy governor for prudential regulation and chief executive of the Prudential Regulation Authority, has confirmed the PRA’s support for the provisions in the draft order, in a letter that I have laid in the Library. There are copies in the Committee Room for Members. He states that the statutory instrument, with its conditions, supports

“the PRA’s primary statutory objective of safety and soundness, and limits competitive distortion.”

He also confirms that the PRA feels that it

“has a range of tools…to ensure the effective supervision of HSBC UK and SVB UK”.

In conclusion, the draft order, along with the previous exemption, is crucial to the purchase of SVB UK by HSBC. It protects taxpayers, depositors and the financial system. The UK has a world-leading tech sector with a dynamic start-up and scale-up ecosystem, and the Government are pleased that a private sector purchaser was found. I hope that hon. Members will join me in supporting the draft order.

--- Later in debate ---

[Andrew Griffith]

It is always a pleasure to respond to the hon. Member for Hampstead and Kilburn. I thank her and the hon. Member for Glenrothes for their support.

I reassure both Opposition spokespeople that the exemption was a necessary move in the eyes of the Bank of England, which conducted the process to seek an alternative buyer, of which the exemption was a necessary precondition. In this case, the introduction of a long-term exemption, as opposed to the time-limited exemption of four years in the existing legislation, will ensure that the outcome that I think we all seek—the continued flow of funds on an affordable basis, particularly to small businesses and start-ups—can happen on a commercial basis. That is the reason for the long-term exemption from the ringfence.

I assure Members that the exemption is an exception, and not just to the process. The fact that we have introduced this statutory instrument, thereby giving Parliament the opportunity to scrutinise the change, demonstrates the proper nature of the exception process; this is not being done simply by the exercise of a discretion on the part of any of the participants.

I also assure Members that the intention behind the ringfencing regime—the desire to reconcile the protection of consumers and the importance of the financial stability system with the ongoing viability of a healthy financial sector—continues to this day. The objectives remain exactly the same. We have put out a call for evidence on the long-term review and will publish our response to it in due course. We are taking the appropriate amount of time and I am always happy to consult Members so that we get it right. This is not something that we seek to rush and we certainly do not seek to deregulate for deregulation’s sake. We wish to regulate the balance of harm.

It is also the case that the provisions of the original 2014 order might not always be the optimal point on the envelope. For example, we are trying to ensure the flow of funds to small and medium-sized enterprises, which is perhaps a shared objective. As we seek to move forward on ringfencing, that is not to repudiate the original intention laid down by this House but to revisit some matters, many years down the road from the 2008 banking crisis and in a different environment—for example, this sale happened very quickly—so that we can look at the most effective remedies in a situation in which things can move much quicker.

I think I have broadly addressed most questions. As the hon. Member for Glenrothes observed, the PRA’s powers are wide and are not fettered, other than in respect of the long-term continuation of this particular ringfence. A monitoring regime that many would characterise as intrusive will apply to the SVB UK subsidiary, just as it will to HSBC. We should be reassured—this is broadly what the PRA chief executive said in his letter to me that has been laid before the House—that the PRA feels it has the necessary powers.

On the slightly out-of-scope point from the hon. Member for Birmingham, Perry Barr about a national development bank—I understand that this was his opportunity to raise that important topic—we have made, as he will know, a number of interventions that support businesses at every point on the spectrum, from the good work done by the British Business Bank and its many different schemes to provide finance and liquidity, to the UK Infrastructure Bank, which has a specific remit in respect of net zero and levelling up. Rather than detain the Committee, let me say that I am always content to meet Members to explain the work we are doing and seek challenge if they would like us to look at additional work.

Question put and agreed to.