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

Andrew Griffith 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.

[Hilary Benn (Leeds Central) (Lab)]

The Minister said a moment ago that HSBC has to date provided some £2 billion to SVB to enable it to service its customers. Are such sums reported regularly to the Bank of England and regulators? Does he anticipate that HSBC will need to transfer further sums to continue to support depositors?

[Andrew Griffith]

Colleagues should know that I have nearly concluded my initial comments, if they want to intervene.

The truth is that I do not know whether such sums are reported regularly. Within the financial regulation system, the PRA has strong oversight, often with quite intrusive reporting requirements. I will write to the right hon. Gentleman about the ongoing nature of reporting. It is public knowledge that the bank had suffered withdrawals in the days immediately running up to the action we took, so clearly the money’s purpose was, in effect, to replenish it so that the money was in funds for all the bank’s clients.

The second statutory instrument that we will lay in due course will allow SVB UK to remain exempt from the ringfencing rules beyond the four-year transition period, subject to certain conditions—in effect, to make that permanent. That second exemption is not required immediately, and it will not be subject to the made affirmative procedure, but the House will have an opportunity to debate it after it has been introduced. The exemption was deemed critical to the success of the sale as it ensured that SVB UK could remain a commercially viable, stand-alone business, serving its clients within the HSBC group.

There was a clear determination that the measures were crucial to facilitating the purchase of SVB UK by HSBC—not just by the Government, but by the Bank of England. The UK has a world-leading tech sector, with a dynamic start-up and scale-up ecosystem, and the Government were pleased that a private sector purchaser was found. I therefore hope that right hon. and hon. Members will join me in supporting the legislation.

--- Later in debate ---

[Andrew Griffith]

It is always a pleasure to follow the hon. Member for Hampstead and Kilburn and the right hon. Member for Dundee East as I master my brief.

The hon. Member for Hampstead and Kilburn talked about the wider issue of interest rates in the current environment. The Bank of England has processes in place to monitor their impact. Each year it carries out a stress test that involves plausible economic scenarios. The 2022 stress test included a rapid rise in interest rates—the UK bank rate was assumed to rise to 6% in early 2023—and higher global interest rates. The hon. Lady will be as keen as I am to see the results of that test, which will be published in the summer. This year, the Bank will also run, for the first time, an exploratory scenario exercise based on non-bank financial institution risks, which I imagine are also of concern to the hon. Lady.

The hon. Member for Hampstead and Kilburn and the right hon. Member for Dundee East talked about the background to and justification for the exemption. To put it simply, it was a prerequisite for the deal in order for SVB to continue to service its existing range of clients. In the circumstances, the view of the Treasury and the Bank of England was that it was expedient. While I do not think that hon. Members have misunderstood the situation, I was clear that the exemption is absolutely not one for HSBC itself. Its ringfenced activities and balance sheet remain within the ringfence, with all the protections that involves. Whether or not I agree with the characterisation of the right hon. Member for Dundee East, all of those protections remain as is. The simple fact is that SVB UK, a much smaller bank, accounts for roughly fewer than 1% of clients. I can be bolder: I think fewer than 10% of 1% of the company’s clients will sit within SVB UK, and there will, of course, be provisions to prevent the migration of one to the other. Effectively, the objective of what we are doing will maintain the status quo.

The hon. Member for Hampstead and Kilburn asked whether there would be any further “tinkering” with the ringfencing regime. I assure her there will not be any tinkering, but there might well be appropriate reforms. They will draw on the work of Sir Keith Skeoch, with whom she is probably familiar, and also the expressions of interest that are out in the field. She might wish to engage with that process and make sure her views are well represented. The purpose of doing so is always to mobilise productive capital in the right way. While there are many positive aspects to the ringfence, if it is implemented wrongly, it can suppress the availability of capital for start-ups, scale-ups and SMEs, which none of us would intend.

After the hon. Lady suggested that we might tinker with the ringfence, she spoke about what we are doing to help the sector in question, which is a core focus for the Government. The Chancellor said in the Budget that we will come forward with a full package of measures by the autumn statement. Work is going on right now to ensure that our most cutting-edge companies can access capital at every part of the curve—from scale-up from the first round, all the way through to the listed environment. That includes the £250 million LIFTS—long-term investment for technology and science—scheme, which we launched in the Budget. We are also progressing the Department for Work and Pensions consultation on the value-for-money framework relating to capital trapped in pensions, as well as the potential for pension scheme consolidation and lifting the charge cap on pensions. We also extended the British patient capital programme by a further 10 years until 2033-34, with an increased focus on the most R&D-intensive industries. That will put another £3 billion behind opportunities for the most productive capital.

The hon. Member for Hampstead and Kilburn asked for reassurance that, under HSBC’s ownership, the sector would continue to be supported. I have had that assurance from the bank’s executives. It is not for the Government to commit to how the bank will run that business, but it is putting capital behind it and has talked about a growth strategy. As I understand it, it has retained the existing management, who were well regarded in the sector. Although no one should be naive, and we will keep a close eye on the situation, everything that I have seen to date gives me the reassurance that the hon. Lady wants.

Question put and agreed to.