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

Peter Grant Excerpts

Wednesday 7th June 2023 General Committees

[Peter Grant (Glenrothes) (SNP)]

The SNP will not oppose the draft order, but I would appreciate some clarification. We have to be up front that this is a controlled, measured and proportionate weakening of the consumer protection requirements that were put in place after the catastrophic financial crash 15 years ago.

In principle, we all support the position that there will be rare occasions when those consumer protection measures need to be weakened, and in some cases removed altogether for a short time in order to prevent even more serious harm that might have arisen had they been enforced. The Government’s argument is that the threatened collapse of Silicon Valley Bank UK Ltd was one such occasion. I do not think that anyone could argue with that, because we saw what happened in 2007 and 2008, when banks collapsed in a chaotic and uncontrolled way. In essence, the ringfencing requirements were introduced to try to prevent the situation arising ever again in which a bank was too big to be allowed to fail. The regime allows banks to fail in a way that causes as little damage as possible, and ideally none whatever, to the wider economy.

I do not think that there is any disagreement on the need for an exemption to the Financial Services and Markets Act 2000 (Ring-fenced Bodies and Core Activities) Order 2014, because that was clearly part of what was needed to prevent the bank from failing completely. I hope that the Minister will be able to persuade the Committee why that exemption needs to be made permanent, rather than applied for the usual four-year period. When the Amendments of the Law (Resolution of Silicon Valley Bank UK Limited) Order 2023 was debated on 27 March, the Minister effectively said that the exemption was necessary—I am paraphrasing his words—because HSBC needed to be allowed its new subsidiary. There was no publicly funded bail-out because HSBC had had to bail it out to the tune of over £2 billion at the time, and possibly a bit more since.

I am not clear why that exemption needs to be made permanent. Are we saying that the subsidiary, Silicon Valley Bank UK, will continue to need bail-outs beyond the four-year period? Remember that HSBC would not have bought it had it thought that it would be a permanent drain on its resources. I appreciate that there is a big difference between liquidity issues and profitability issues, but SVB UK certainly did not have profitability issues; it made quite a handsome profit in the last financial year for which it reported. At the time of the takeover, HSBC thought that it would make a gain of around £1.4 billion on the purchase. It has now scaled that back, and in the quarter 1 results published on 2 May this year it gave a value of just over $1.5 billion, as opposed to a similar number of pounds. For something that it paid £1 for, $1.5 billion is still not bad.

The Minister referred to the letter of 9 May from the chief executive officer of the Prudential Regulation Authority. He pointed to the explanatory memorandum, which makes it clear that the draft order is not intended to have any impact whatever on the PRA’s powers or how it uses them. He specifically mentioned section 55M of the Financial Services and Markets Act 2000, which, along with some of the sections around it, gives the PRA extensive powers. Will the Minister clarify just how widespread the PRA’s powers are? For example, could the PRA use its unaffected powers to reinstate some of the ringfencing requirements without recourse to Parliament? If there is to be a reimposition of the ringfence, does that need to be approved by Parliament in the same way as the exemption was?

My key question is this: is there an expectation that Silicon Valley Bank UK will have liquidity issues that need support from its parent company more than four years after the takeover? If we do not expect that, why do we need this order?