The UK chancellor is preparing a dramatic intervention to provide a cash lifeline to scores of tech businesses next week as he seeks to contain the damage caused by the collapse of Silicon Valley Bank.
Jeremy Hunt said there was “a serious risk” to tech and life sciences companies that used SVB’s UK bank, many of which could struggle to pay wages and bills next week.
“We will bring forward immediate plans to ensure the short-term operational and cash flow needs of Silicon Valley Bank UK customers are able to be met,” the Treasury said in a 7.30am statement on Sunday.
But Hunt went further, saying there was a need to find “a longer-term solution” to ensure that tech companies in Britain were not taken down by the collapsed bank.
Asked if he would guarantee 100 per cent of deposits, Hunt told the BBC’s Laura Kuenssberg: “We want to find a way that minimises — or if we possibly can — avoids all losses to these incredibly promising companies.”
The chancellor added: “Although this is a bank most people haven’t heard of, it happens to be used by some of our most important companies.”
Hunt has ruled out a bailout of the UK arm of SVB and is instead focusing in the first place on supporting the cash flow of the many tech groups with deposits at the bank.
The chancellor said he had held talks with Andrew Bailey, Bank of England governor, and Rishi Sunak, prime minister, late into Saturday. He wants to have a final plan in place by as soon as Monday.
Tech companies, many of which tried to pull their money out on Friday, risk losing all of their deposits above £85,000 if SVB is put into the BoE’s resolution regime.
More than 200 UK-based tech company executives have urged Downing Street to step in, warning that many companies faced an “existential threat” because they banked with the UK unit of SVB.
Sunak says he wants to turn Britain into “the next Silicon Valley” and is said by government insiders to be determined to contain the fallout for the tech sector from the bank’s collapse.
The Bank of England announced on Friday that Silicon Valley Bank UK was set to enter insolvency, following action taken by its parent company in the US, adding that it had a limited presence in the UK and did not perform functions critical to the financial system.
But the Treasury said: “The government recognises that, given the importance of SVB to its customers, its failure could have a significant impact on the liquidity of the tech ecosystem.”
Deviating from the post-crisis resolution framework could cause tension with the BoE. The BoE did not immediately respond to requests for comment.
Rachel Reeves, shadow chancellor, said on Sunday it was vital to establish the problem faced by tech companies and that a range of options should be considered by Hunt, including guaranteeing all deposits or “working with the US government on a rescue” for the bank.
On Saturday, more than 200 start-up founders and leaders signed an open letter to Hunt, warning that “the majority of us as tech founders are running numbers to see if we are potentially technically insolvent”.
The signatories said they employed more than 10,000 people and had raised venture funding totalling £3.5bn.
“The majority of the most exciting and dynamic tech businesses bank with SVB and have no or limited diversity in where their deposits are held,” the letter said.
“This is a real moment of crisis for British start-ups,” said Dom Hallas, executive director of Coadec, a lobby group representing UK-based tech companies. “Without a clear way forward by Monday the risk will grow — it’s critical that government has a plan in place by then.”
Signatories to the letter include executives from Tessian, Beamery, Curve and bit.bio, companies that have each raised funding in excess of $100mn, as well as several smaller groups.
Daniel Shakhani, founder of Salary Finance and an investor in a series of companies that have received SVB funding, said: “This is a crisis that requires UK government involvement as it’s not clear what the outcome is going to be for the UK entity, which could be left orphaned if SVB US gets sold.”
Hephzi Pemberton, founder of data consultancy Equality Group, said that a substantial portion of its funds were frozen in SVB UK. “We are scrambling to make payroll for March and it will involve a lot of manoeuvring to make it happen,” she said.