Resolution Re-Imagined: Rescue of SVB UK Demonstrates Possibilities for UK Stabilisation Powers

As the dust settles on the rescue of Silicon Valley Bank’s UK subsidiary (SVB UK), it is clear that the Bank of England’s use of stabilization powers under the Special Resolution Regime (SRR) established by the Banking Act 2009 has the potential to transform bank resolutions in the UK.

Introduction

The collapse of Silicon Valley Bank’s parent company sent shockwaves through the technology and life sciences sectors. The Bank of England was forced to step in to protect UK depositors. However, what could have been a disaster for customers of SVB UK turned into a triumph for the banking sector as the Bank of England, with the support of Freshfields, found a way to sell the bank to HSBC UK Bank Plc using its stabilization powers.

Expansion and Elaboration

The rescue of SVB UK using stabilization powers is a landmark event, as it is the first time these powers have been used in the UK. However, it is not likely to be the last, as these powers open up new possibilities for bank resolutions and ensure that clients of failed banks do not suffer any undue hardship.

The Power of Stabilisation

One of the key benefits of the stabilization powers is that they allow for the sale of a failing bank to a willing and appropriate purchaser without the need for consent from the bank’s shareholders, customers, or counterparties. This means that a bank’s assets can be used for the benefit of the broader economy rather than being tied up in a protracted liquidation process.

Protecting Depositors

The stabilization powers also have the potential to protect depositors in failing banks. For example, in the case of SVB UK, eligible depositors whose deposits were protected by the Financial Services Compensation Scheme (FSCS) were paid out as quickly as possible, up to the protected deposit limit of £85,000. This allowed depositors to access their money swiftly and without undue stress, mitigating the impact of SVB UK’s collapse.

Minimizing Disruption

The use of stabilization powers also has the potential to minimize disruption, particularly in banks with a concentration of clients in a particular sector, such as technology or life sciences. For example, in the case of SVB UK, the Bank of England’s Resolution Directorate, supported by its Legal Directorate and Freshfields, worked tirelessly over the weekend to find a buyer for SVB UK. By Monday, the bank had been sold to HSBC UK Bank Plc, providing continuity of service to SVB UK’s clients and supporting confidence in the UK financial system.

Related Facts

• The Banking Act 2009 established the Special Resolution Regime (SRR) to help the UK authorities deal with failing banks.
• The SRR is intended to allow failing banks to be resolved orderly while minimizing the impact on taxpayers and the broader economy.
• The SRR includes a range of powers, such as transferring ownership of a failing bank to a new owner without consent from the bank’s shareholders, customers, or counterparties.
• In the case of SVB UK, the Bank of England determined that the stabilization powers were appropriate, as there was a credible buyer for the bank, and the sale of the bank was in the public interest.

Key Takeaway

The rescue of SVB UK using stabilization powers demonstrates the potential for these powers to transform bank resolutions in the UK. By providing a mechanism for selling failing banks to appropriate buyers, without the need for consent from stakeholders, and protecting depositors, the stabilization powers can reduce the impact of bank failures on the broader economy while providing continuity of service to customers.

Conclusion

The rescue of SVB UK using stabilization powers represents a significant breakthrough for the UK authorities as they seek to address the challenges of failing banks. By providing a flexible and effective mechanism for resolving failing banks, the stabilization powers have the potential to minimize the impact of bank failures on the broader economy and provide a better outcome for stakeholders.