Silicon Valley Bank collapse: International solutions
16 March 2023 | 3 minute read
On March 10, US regulators closed Silicon Valley Bank (SVB), marking the second-largest US bank failure in history and the first since the global financial crisis in 2008. This also impacted customers of Silicon Valley Bank (UK) Ltd (SVB UK) and businesses in China and Hong Kong.
With several important issues still to be resolved, we recommend contacting your Withers partner for specific advice on your situation or use the contact email address below and we will get back in touch.
On March 12, US banking regulators reached a plan to backstop all US depositors with money at SVB through the provision of up to $25 billion. It appears that all depositors, not just insured depositors, at SVB will have full access to their deposits. SVB shareholders and some unsecured creditors, however, will not be protected and will lose their investments.
This plan also includes a strategy that positively impacts other similarly situated banks that were at risk of collapse. A new Bank Term Funding Program will offer loans of up to one year to banks, saving associations, credit unions, and other institutions. This move is aimed at strengthening public confidence in the banking system by bolstering the capacity of the banking system to safeguard deposits and ensure the ongoing provision of money and credit into the economy.
As such, it appears that the worst-case scenario has likely been avoided, but it remains to be seen how the logistics of these mass withdrawals by depositors will work.
SVB UK was acquired on March 13 in a £1 share acquisition by HSBC UK Bank Plc, one of the world's largest banking and financial services institutions. The Bank of England advised that: "This action has been taken to stabilise SVB UK, ensuring the continuity of banking services, minimising disruption to the UK technology sector and supporting confidence in the financial system".
This is a significant step forward both for deposit and borrower positions. However, there are still likely to be challenges ahead and what does this actually mean in practical terms for SVB UK's Venture Debt borrowers? The information released by HSBC on March 13 suggests that start up borrowers will continue to have access to venture debt and its deposits but undoubtedly there will be an impact on movement of funds, permitted bank accounts and future access to undrawn previously available funding.
SVB operated in China as SPD Silicon Valley Bank Co, a 50-50 joint venture in China with Chinese state-owned Shanghai Pudong Development Bank. SVB also had a representative office in Hong Kong, but did not take deposits there. However, it remains to be seen what the impact in Asia would be given that many of SVB’s depositors are founders and technopreneurs who kept funds received from investors with SVB, and how this crisis may affect performance obligations in cross border investments. There may be opportunities for parties to take legal action to protect their interests or to cut losses.