On Friday, 10th March 2023, the “go-to banking partner” Silicon Valley Bank (SVB) collapsed after it failed to keep up with rising interest rates and falling stocks in technology.
The collapse of Silicon Valley Bank is the most significant bank failure since the financial crisis in 2008 and the second-largest retail bank failure in the United States.
At the time of the failure, Washington Mutual (2008) had $307 Billion in assets, whereas Silicon Valley Bank (2023) had $209 Billion in assets.
HSBC, Europe’s largest bank, has just acquired the UK branch of SVB for £1, following the US government’s move to secure all US customer deposits during the weekend.
Jeremy Hunt has promised business as usual for SVB UK customers.
But will HSBC’s move to buy Silicon Valley Bank’s UK branch affect the UK property market?
Find out below as we delve into why SVB collapsed, why UK businesses should remain wary, and what the bailout means for the UK property market.
Why Did The Silicon Valley Bank Collapse?
The bank, which attracted start-ups, investors, entrepreneurs and leading Web3 innovators, brought billions of dollars worth of bonds over the past few years.
The value of the investments fell as they paid lower interest rates than a comparable bond in today’s high-interest rate climate.
Buying bonds at this level is a standard bank procedure, especially as they look to hold onto them for long periods; however, as SVB’s customers were technologically-centric companies, they started needing significantly more over the past year.
As these tech-based companies struggled to receive extra funding, they decided to start withdrawing their SVB deposits, and so the bank had to start selling its assets to meet customer withdrawal requests.
With these companies owning far more than the deposit insured $250,000 or £85,000, they feared a bank failure, and SVB was forced to sell safe bonds at a loss, resulting in the bank becoming insolvent.
Silicon Valley Bank attempted to raise capital through outsider investors but could not, and then SVB consumers went on a bank run — where many customers withdrew their money in a very short period of time.
Bank regulators had no choice but to seize SVB’s assets to protect the assets and deposits remaining at the bank.
Why Should UK Companies Be Wary Of The SVB Collapse?
The Silicon Valley Bank Collapse set off a scramble in London to shield the UK tech sector as SVB was a primary lender for many in the city.
The potential for problems to spread was a high priority, and Jeremy Hunt claimed: “failure could have a significant impact on the liquidity of the tech ecosystem.”
The collapse could have meant that any UK-based account holders at Silicon Valley Bank could not pay employees, which could create a domino effect on the economy — with many being unable to afford mortgage repayments.
Government and regulatory agencies worldwide work tirelessly to ensure their economies are not exposed to the bank collapse in their corporate and banking sectors.
UK companies remain wary of the Silicon Valley Bank collapse because SVB’s vulnerabilities to rising interest rates are paralleled in other banks. This is a genuine conundrum, especially in an economy where high-interest rates are cultivated to combat high inflation.
Most financial forecasters expect interest rates to climb even higher in the UK, US and Australia over the following months before stabilising.
For now, however, HSBC has bought the UK-based branch of Silicon Valley Bank, ensuring some reassurance to many of the bank’s clients.
What Does HSBC’s Bailout Mean For The UK Property Market?
HSBC, as a result, has swooped to buy the UK branch of SVB to relieve UK tech firms who warned they would go bust without help. Customers and businesses can now access their funds as usual.
The UK government has confirmed that no other UK banks have been materially affected by the collapse of Silicon Valley Bank collapse and that the more comprehensive banking system remains “safe, sound and well capitalised.”
The UK branch of Silicon Valley Bank had just over 3,000 consumers, most of which are pivotal in the UK’s future economic success due to their science and technological focus.
The HSBC bailout was a preferred choice by Chancellor Jeremy Hunt as it avoided a significant government intervention to protect depositors and the possible use of taxpayers’ money to do so.
We asked Jonathan Christie, The Property Sourcing Company’s Chief Executive Officer, whether property investors and landlords should be wary of the current banking fiasco.
He said, “Although the Silicon Valley Bank failure over the weekend has caused chaos, property investors and landlords should carry on with business as usual.”
“It’s whether or not there is any contagion from the Silicon Valley Bank failure for any other banks and their confidence.”
“I think the scenario is quite segregated for now, but if there is any link with other banks filtering through into their products, we could potentially see some derivations.”
“We could see a domino effect in the coming months, so we must keep our ears to the ground and ensure we remain wary of the current financial situation. But, I am not overly concerned about the UK property market at this moment in time.”