The government says it is working “at pace” on a plan to prevent UK tech firms caught in the collapse of Silicon Valley Bank running out of cash.
The Treasury said it wanted to “minimise damage to some of our most promising companies in the UK” after the US bank’s failure last Friday.
US regulators shut down the lender on Friday in what is the largest failure of a US bank since 2008.
The bank’s UK subsidiary will be put into insolvency from Sunday evening.
Prime Minister Rishi Sunak, Chancellor Jeremy Hunt and Bank of England Governor Andrew Bailey “were up late last night” and have been “working through the weekend to come up with a solution” to the collapse of Silicon Valley Bank UK, Mr Hunt told the BBC’s Sunday with Laura Kuenssberg programme.
While there’s no risk to the UK’s financial system as a whole, “there is a serious risk to some of our most promising companies in technology and life sciences”, Mr Hunt said.
“These are very important companies to the UK, a very important part of our future.”
“We want to find a way that minimises or avoids all losses to those incredibly promising [firms],” Mr Hunt said, although he said he could not commit to companies recovering all of their money.
He said the government was “working at pace” to bring forward a plan to make sure firms can meet their cashflow needs “within the next few days”.
That plan will mean companies can pay their staff, he said. “That’s the big ask we’ve had in the last 24 hours.”
But Rachel Reeves, Labour’s shadow chancellor, said that firms need to urgently hear how the government planned to help.
She said start-ups needed to pay wages and suppliers, and some could feel pressure on share prices, or even have investors saying they no longer have confidence.
“We need, tomorrow morning, to hear from the government, how they are going to protect firms,” she said, whether that is guarantees, or working with the US government on a rescue for the bank.
Asked whether the government would come up a solution by the time the markets open on Monday morning, Prime Minister Mr Sunak said: “The Treasury is working at pace.”
Tech firm concerns
More than 200 bosses of UK tech companies signed a letter addressed to Mr Hunt on Saturday calling for government intervention.
The letter, from Fintech Founders, said many financial technology firms had all of their banking with SVB “and will therefore go into receivership imminently unless preventative action is taken”.
“The firms affected by the collapse of SVB serve millions of people in the UK along with businesses that are critical to our economy,” the letter said.
“The cost of inaction here means that these firms could fail in the short-term and your technology growth ambitions will fail in the long-term.”
One source in a tech firm told the BBC: “It all feels like it could be pretty terminal for UK tech.”
“This Monday, at least 200 firms employing tens of thousands of people will find they can’t pay their staff or suppliers because the bank they had an account with has gone bust,” the source said.
Between 30% and 40% or UK start-ups employing up to 50,000 people could be affected by the collapse, the source added.
Michael Moore, director general of the British Private Equity and Venture Capital Association, said this was an “urgent matter” and that “help is needed by tomorrow [Monday]” for tech firms and entrepreneurs.
SVB collapsed in the US after failing to raise to raise $2.25bn (£1.9bn) to plug a loss from the sale of assets, mainly US government bonds, that were affected by higher interest rates.
Its troubles prompted a run on the bank in the US and sparked investor fears about the general state of the banking sector.
Silicon Valley Bank specialised in lending to early-stage businesses, and the company banked nearly half of US venture-backed technology and healthcare companies that listed on stock markets last year.
The firm, which started as a California bank in 1983, expanded rapidly over the last decade. It employs more than 8,500 people globally, with most of its operations in the US.
But it has been under pressure as higher rates make it harder for start-ups to raise money through private fundraising or share sales. More clients were withdrawing deposits in a trend that snowballed last week.
Silicon Valley Bank UK has stopped making payments or accepting deposits prior to going into insolvency from Sunday.
The move will allow individual depositors to be paid up to £85,000 from the UK’s deposit insurance scheme.
However, the government committing to protecting any more than this would be a “serious moral hazard”, Treasury permanent secretary Nick Macpherson tweeted – that is, depositors would lack an incentive to guard against risk if they expected the government to fully pay out in any UK bank collapse.