Yahoo Finance Silicon Valley Bank’s UK arm lost 30% of its deposits in a single day, Andrew Bailey reveals
The governor of the Bank of England has said that the collapse of Silicon Valley Bank (SVB) was the quickest seen since Barings Bank failed in 1995.
Andrew Bailey told MPs that the UK subsidiary of the Californian lender experienced a 30% run on its deposits in a single day as panic spread through markets and savers.
Despite the run, Silicon Valley Bank's UK arm as able to meet those requests, which made its sale process to HSBC (HSBA.L) easier.
The FTSE 100-listed (^FTSE) bank bought the UK division of SVB for £1 days after US regulators stepped in to avoid a wider crisis in the financial sector.
Read more: Wall Street mostly higher after SVB assets deal as FTSE closes in the green
Bailey said he was surprised by the speed of the collapse of Silicon Valley Bank in the US.
“In my past 30 years, talking about the parent bank in the US to start with, Silicon Valley Bank saw the fastest passage from health to death really since Barings," he said.
Bank of England Governor Andrew Bailey answers Treasury Committee questions - watch live 💷 https://t.co/7gisDZn7uG
— Yahoo Finance UK (@YahooFinanceUK) March 28, 2023
“That was a Friday to Sunday thing and this was pretty similar — I will draw a distinction with Credit Suisse (CS) which was a more drawn out affair.”
He added: “The US authorities are still dealing with some of the consequences of the issues and the issues with regional banks which we saw with SVB.
“Credit Suisse is a rather institutional-specific story about long-running issues in that institution.
“My very strong view about the UK banking system is that it is in a strong position both capital and liquidity wise, it is not showing signs of problems in that respect and we have tested very extensively.”
Barings Bank failed in 1995 after rogue trader Nick Leeson ran up losses through unauthorised and concealed trading positions.
Read more: Wall Street and FTSE struggle as Deutsche Bank sparks another banking sell-off
Sam Woods, chief executive of the Prudential Regulation Authority, said the speed of withdrawals will be an issue in the aftermath of the Silicon Valley Bank.
He said: "There is going to be a question for all of us whether those outflow rates are high enough."
He added that the alarming rate at which the Silicon Valley Bank unfolded had been "exacerbated" by "the speed at which news can travel," which was not an issue on the same scale when regulations were brought in after the global financial crisis.
Sam Woods, PRA boss, immediately stresses the issue we pointed to last week - that speed with which runs can now happen (social media/ digital banking) might require change in regulation, specifically the liquidity coverage ratios. SVB UK lost £3bn in deposits in a day on 10th pic.twitter.com/eqJCzxOelt
— Faisal Islam (@faisalislam) March 28, 2023
He said: "All of us can move money from our accounts in a short amount of time. That is a relatively new feature of the market."
Andrew Bailey revealed that SVB UK received a number of possible offers but HSBC was the sole “realistic offer”.
“Most of them don’t turn into anything real and then occasionally you get ones where they set conditions and you say ‘no sorry, we can’t do that’," he said.
By around 7pm or 8pm on Sunday evening, HSBC was the only option left, Bailey said.
He insisted that we are not facing a repeat of the financial crisis 15 years ago.
“I don’t think we are at all in the place we were in in 2007-08. We are at a very different place to then.
“But we have to be very vigilant,” he added.
Bailey also insisted that it should not become “the norm” that all deposits are protected when a bank fails, after the United States treasury secretary Janet Yellen suggested that it would safeguard people’s savings in the event another smaller lender like Silicon Valley Bank collapsed.
The Bank of England’s governor likened the current situation in the US to the UK’s 2008 financial crisis.
He told MPs: “I perfectly understand what the US has done because we faced the same challenge in 2008. It’s a very difficult decision, but in the heat of the moment there are times where you have to make that judgement.
“I agree with what I think Janet Yellen has said in that this is not a state of affairs that should be the norm, that all deposits are guaranteed.”
He added that it can be difficult to strike a balance between stopping “bank runs” happening by offering to protect savings, and ensuring deposit guarantees do not become the norm.
“I don’t for one moment want to criticise the US authorities, as I think they have been dealing with a very hard situation”, he said.
Watch: 'SVB crisis is a far, far cry from the 2008 financial crisis'
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