Silicon Valley Bank

Lindsay Hoyle Excerpts

Monday 13th March 2023 Commons Chamber

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

With your permission, Mr Speaker, I will make a statement on the steps His Majesty’s Government have taken to limit risks to our tech and life sciences sector.

Following the rapid deterioration of Silicon Valley Bank, and working in concert with the Bank of England, early this morning we facilitated the purchase of the UK subsidiary of Silicon Valley Bank by HSBC. Serving 39 million customers globally, and headquartered and listed here in the UK, HSBC is Europe’s largest bank. Those affected are now secure in the knowledge that their deposits are protected and that they can bank as normal. Customers should not notice any changes, while the wider UK banking system remains safe, sound and well capitalised.

Using stabilisation powers granted by the Banking Act 2009, which afforded us the ability to safely manage the failure of banks, we have forestalled disruption in the tech sector and supported confidence in the UK financial system. The resolution action was taken by the Bank of England in consultation with HM Treasury, using its powers to transfer the UK business of SVB to a private sector purchaser. As required by the Act, the Bank of England consulted the Treasury, the Prudential Regulation Authority and the Financial Conduct Authority on its assessment that all required conditions for that transaction had been met.

We have been able to achieve this outcome—the best possible outcome—in short order without any taxpayer money or Government guarantees. There has been no bail-out, and the actions taken are a win for customers, taxpayers and the banking system. The transfer of SVB UK to a buyer has allowed the Treasury to limit the risk to public funds by ensuring that shareholders and creditors, rather than depositors, bear losses. To help achieve that result, the Bank of England has made a related instrument bringing about a mandatory reduction of capital instruments in SVB UK, restoring it to viability. It is my view that in this situation, the system worked as we would hope.

In order to ensure that the sale could proceed, the Government are using their powers under the Banking Act to provide HSBC with an exception to certain ringfencing requirements. That was crucial to ensuring that a successful transaction could be executed, that the bank has the liquidity it needs, and that deposits and public funds are protected.

The outcome will provide security for some of the UK’s most innovative, fast-growing firms. The UK’s tech and life sciences sectors are world leading, hundreds of thousands of people are employed in them, and they make a very substantial contribution to the economy as a whole. My right hon. Friends the Prime Minister and the Chancellor have been clear throughout that we will look after our high-tech sectors, and that is what we have done. The Bank of England has confirmed that, as a result of the swift, decisive action we have taken, depositors will be able to access their accounts. It is worth reiterating that, as the Governor has said, the wider UK banking system remains safe, sound and well capitalised.

In concluding, I place on record my sincere thanks to my fellow Ministers across Whitehall, to officials at the Treasury and to regulators. They worked tirelessly through the weekend to grip the situation, to deliver this solution and to prevent real jeopardy to hundreds of the UK’s most innovative companies.

[Mr Speaker]

I call the shadow Minister.

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[Andrew Griffith]

I think concealed within that was grudging support, and I am sure that the hon. Lady would like to add her voice to those of so many in the sector who have welcomed this announcement today, which provides the important confidence and stability that are needed. She raised the point that SVB UK has a separate banking licence, and it is precisely because of that mechanism that our regulators and the Treasury have been able to take the action we have taken over the weekend.

I think the hon. Lady understands the disruption and volatility in the sector, but she should be reassured that the Governor of the Bank of England has confirmed that this is not indicative of systemic risk. I can confirm that, in order that the Silicon Valley Bank, now within HSBC, can provide the broad range of services that our life sciences and tech sector value so much, the exemption from the ring-fencing requirements will be permanent.

The hon. Lady asked about a systemic review. Of course, these are always opportunities for us to learn and look again, but, as I said in my opening remarks, the system has worked as intended.

Finally, and with the greatest of respect, we on the Conservative side of the House need no lessons on patient capital. We are unlocking capital for our important tech and life sciences. Only last week, the Under-Secretary of State for Pensions, my hon. Friend the Member for Sevenoaks (Laura Trott), brought to this House regulations to remove the charge cap and to allow our pension funds to invest in some of the fastest-growing sectors of our economy.

[Mr Speaker]

I call the Chair of the Treasury Committee.

[Harriett Baldwin (West Worcestershire) (Con)]

May I put on the record my gratitude to the Minister, his colleagues and officials, and to people at the Bank and in the City in general, who have obviously worked flat out all weekend to deliver what turns out to be the best possible outcome in these difficult circumstances?

On the importance of the sector to the UK economy, did the Minister and the Bank treat this situation any differently because of the sector in which SVB was operating, or would they have tried for the same sort of solution for a bank in any sector? Was the Minister as concerned as I was about reports that investors required the firms that they were funding to put money into the bank as a condition for investment? Finally, given that other banks have collapsed in the US—other small banks, including one that specialised in crypto—does he think that crypto is in any way contributing to financial instability?

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[Mr Speaker]

I call the SNP spokesperson.

[Stewart Hosie (Dundee East) (SNP)]

One of the key lessons of the 2008-09 financial crash was that the conduct of business and liquidity issues could very quickly morph into systemic risk with contagion across a variety of transmission channels, so I very much welcome the speedy way in which the SVB UK issue was resolved over the weekend. However, that bank’s business model—and it is not alone—involved it holding a large number of low-interest-bearing bonds at a time of rising bond yields. It was required to sell those at a loss, which exacerbated the liquidity problems that it had. Would it not be prudent now to ensure that our regulators have another look at UK banks to ensure that comparable low-interest-bearing assets are stringently priced and marked to market to ensure that tier 1 capital is just that, and of sufficient quantity and quality that any liquidity problem does not morph into an insolvency and system risk problem?

[Andrew Griffith]

I thank the right hon. Gentleman for his recognition of the speed and decisiveness with which the whole Government have come together, worked together and acted to deliver this outcome—that is kind of him and it is appreciated. If I may, we should not conflate some of what we read about the balance sheet in the US with the regulated balance sheet in the UK, which was a separately regulated balance sheet. Again, on the business model in the UK and the backing, and the bonds and collateral that were being held, I am not aware that their forced sale, and the losses on it, were a contributory factor. The reality is that we saw a withdrawal of deposits. The Bank had the ability, because of the relatively ringfenced balance sheet, to protect the bank and take the necessary action. Had the Bank not done so, we could have been in a very different situation, so we were right to act as we did.

[Mr Speaker]

I call the Chair of the Science and Technology Committee.

[Greg Clark (Tunbridge Wells) (Con)]

I strongly welcome the decisive intervention that has been described, which has saved many UK tech businesses and jobs. Will my hon. Friend consider how the responsiveness of UK regulation, which was demonstrated overnight, combined with the strength of the City of London and our tech sector, provides an opportunity to attract more businesses to do their financing in the UK and means that they do not need to go overseas to get the financing that they require to start up and grow?