TechScape: How Silicon Valley Bank UK was saved

Last week, if you had heard of Silicon Valley Bank UK, you probably worked in tech. The bank had only been spun out in to a separate entity last summer, after its few thousand corporate customers pushed it over a regulatory threshold, and while SVB had grown to almost hold £10bn of deposits, with £5.5bn of outstanding loans, it was very much a specialist player.

Made in America

Like its British subsidiary, the US division specialised in providing banking to startups. And it offered a much wider range of services: not only could your startup get a credit card, but you as a founder could get a mortgage, or a loan that let you exercise stock options. There were even deals with venture capitalists that saw some companies receive funding that was conditional on them banking with SVB, letting it offer a truly cradle-to-grave service for companies.

Across the pond

One was simple: might SVB try and cannibalise its subsidiary to keep itself afloat? A similar tactic had been tried at the height of the financial crisis, when Icelandic banks attempted to repatriate funds from British subsidiaries to stave off collapse. The Financial Conduct Authority could theoretically prevent such transfers, literally setting up shop in the subsidiaries offices if needs be, but it is hard to do while the bank operates as a going concern.

The other is trickier. Even if SVB UK was completely solvent and protected from the troubles at its parent, would customers believe that to be the case? A bank run is a maddening thing to have to prevent, because the only thing worse than racing to pull your deposits out of a bank is not racing to pull your deposits out of a bank as everyone else does.

Even though SVB UK was solvent, £5.5bn of its assets were in the form of loans. If too many depositors tried to withdraw their money at once, it would face a liquidity crisis. And if it tried to sell its loan book for cash in a rush, that liquidity crisis could easily turn into a solvency crisis, bringing the British subsidiary crashing down, too. By Friday, that £10bn of deposits had already shrunk to £7bn, according to the FT.

A tech bank

For now, though, the story moves back to the US, where the collapse of the parent company has been rather less elegantly solved.

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