Amendments of the Law (Resolution of Silicon Valley Bank UK Limited) Order 2023

Alun Cairns Excerpts

Monday 27th March 2023 General Committees

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

I beg to move,

That the Committee has considered the Amendments of the Law (Resolution of Silicon Valley Bank UK Limited) Order 2023 (S.I. 2023, No. 319).

It is a pleasure to serve with you in the Chair, Mr Hollobone.

As right hon. and hon. Members will be aware, Silicon Valley Bank UK Ltd was sold on Monday 13 March to HSBC. Customers of SVB UK are now able to access their deposits and banking services as normal. The transaction was facilitated by the Bank of England, in consultation with the Treasury, using powers granted to it by Parliament through the Banking Act 2009. In doing so, we limited risk to our tech and life sciences sector and safeguarded some of the UK’s most promising companies, protecting customers, financial stability and the taxpayer. The solution was a win for taxpayers, customers and the banking system.

SVB UK has become a subsidiary of HSBC’s ringfenced bank. Ringfencing requires banking groups that hold over £25 billion of retail deposits to separate their retail banking from their investment banking activities. The regime provides for a four-year transition period for an entity acquired as part of the resolution process before it becomes subject to ringfencing requirements. As a result of that existing legislation, SVB UK is not currently subject to ringfencing requirements. However, HSBC UK, the parent company of SVB UK, remains subject to the ringfencing regime.

To facilitate the transaction, we laid in both Houses of Parliament on Monday 13 March a statutory instrument, using powers under the Banking Act 2009, to broaden an existing exemption in ringfencing legislation with regard to HSBC’s purchase of SVB UK. The exemption allows HSBC’s ringfenced bank to provide below market rate intra-group funding to SVB UK. That was crucial for the success of HSBC’s takeover of SVB UK, because it ensured that HSBC was able to provide the necessary funds to its newly acquired subsidiary.

HSBC has since stated publicly that it has provided approximately £2 billion of liquidity to SVB UK—money that it required to continue to meet the needs of its customers, and which this instrument facilitated. The Bank of England and the Prudential Regulation Authority are fully supportive of this modification to the ringfencing regime as a necessary step to facilitate the sale.

In view of the urgency, and given that this statutory instrument was crucial in enabling the sale, the Treasury determined that it was necessary to lay the instrument using the made affirmative procedure, under its powers in the Banking Act 2009. Parliament provided the Treasury with those powers for exactly such situations, recognising that exceptional circumstances can arise when the Government must take emergency action in the interests of financial stability, depositors and taxpayers.

The statutory instrument also makes a number of modifications to the Financial Services and Markets Act 2000 in relation to the rule-making powers of the PRA and the Financial Conduct Authority. Specifically, the rule-making powers are modified to ensure that regulators can exercise them effectively when they relate to the Bank of England’s transfer of SVB UK to HSBC, and the write-down of SVB’s UK shareholders and certain bondholders. The statutory instrument also waives the requirement for the regulators to consult on certain rule changes related to the sale.

In addition to today’s measure, the Government will in due course lay another statutory instrument to make further changes to the ringfencing regime with regard to HSBC’s purchase of SVB UK.

[Alun Cairns (Vale of Glamorgan) (Con)]

It is a privilege to serve under your chairmanship, Mr Hollobone. I congratulate my hon. Friend the Minister and the Treasury for the way in which they moved swiftly to facilitate the acquisition of SVB UK by HSBC.

My hon. Friend will be aware of the questionable confidence in some banks around the world. Has he made an assessment of whether he will need to come before Parliament again to propose similar adjustments to regulations for other banks that might find themselves in the same situation as SVB UK, or should we be confident that the UK banking sector in the UK is sufficiently robust?

[Andrew Griffith]

I thank my right hon. Friend for his question. Primacy for financial stability sits within the Bank of England and the Financial Policy Committee. All I can say is that the Governor of the Bank of England has confirmed that, in his view, the UK banking system remains

“safe, sound and well capitalised”.

I hope that my right hon. Friend understands that it would not be right for me to step outside those words.