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SVB collapse, fears of chaos.

 

SVB sign
Ministers are discussing a possible taxpayer bailout with tech companies after the biggest banking collapse since the financial crisis. The Bank of England said late on Friday that it would put the UK arm of Silicon Valley Bank into insolvency over the weekend. The California regulator has taken control of the parent company after a run on the bank, which lent to thousands of tech firms, including the online retail giant Shopify and the social media company Pinterest. The crisis could spread.

"SVB UK has a limited presence in the UK and no critical functions supporting the financial system," it said. However, entrepreneurs said their businesses would go bust if they could not get their funds in the bank, prompting fears of thousands of job losses. SVB UK has about 650 staff in London and is believed to have "several thousand" business customers. It is not thought to have had a problem meeting its regulatory minimum capital requirement. However, it was hit by panicked customers trying to withdraw their cash after American regulators intervened to take control of its owner in California.

On Friday, the video streaming giant Roku said it had nearly $450 million of cash in uninsured deposits at SVB. Sources said a solution could involve a loan scheme to prop up affected businesses, but that taxpayer bailout of SVB UK was unlikely. Customers will automatically get payments, by cheque, within seven days, but waves of tech start-ups will not be able to survive if they have to wait for the funds above that level to be paid out. Some 200 tech entrepreneurs and venture capitalists employing more than 10,000 people wrote to Hunt yesterday, warning that they required urgent support or else they would collapse.

Companies, including the jobs site Adzuna, Founders Factory and cryptocurrency analytics company Elliptic said there was an "existential threat to the UK tech sector". "The impact the loss of deposits would have would cripple the sector and set the ecosystem back 20 years. " Many businesses will be sent into involuntary liquidation overnight," they wrote in a letter. "It is vital that the government looks to intervene to ensure the continued success of the sector.

While many of the depositors will likely get some of their money back through a liquidation process, for many of us who were holding most or all of our funds with SVB, we will not be able to wait and risk being forced into involuntary liquidation before that money comes back. "This crisis will start on Monday, so we call on you to prevent it now. The entrepreneurs accused the Bank of England of displaying a "dangerous lack of understanding of the sector and its role in the wider economy, both today and in the future". VC, Shachar Bialick, the founder of fintech firm Curve, and Nigel Whiteoak, the co-founder of crafts business LoveCrafts.

On Friday, British companies scrambled to withdraw their deposits from SVB UK, fearing they would be trapped. "Erin Platts, chief executive of SVB UK, stated on Friday to reassure British customers that their money was safe. " SVB UK, whose board members include tech entrepreneur Vin Murria, owns a stake in Founders Factory, the tech incubator set up at last-minute.

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Comments

  1. Jean12 March 2023 at 09:58

    Another reason why it's not smart to keep all your money in one place. You never know. No matter how big it is, something can happen and it falls. And it can happen at any time, with any bank or company.

    ReplyDelete
    Replies
    1. Adam12 March 2023 at 11:01

      Huge companies like Shopify or Pinterest should have their funds in at least 5 banks if not 10. It just makes sense to diversify the risk.

      Delete

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