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The Guardian

Silicon Valley Bank: inquiries launched into bank’s collapse and UK arm

By Joanna Partridge and Graeme Wearden,

2023-03-14
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The Commons’ Treasury select committee is looking into how SVB UK was supervised before its collapse, and how HSBC was chosen as its buyer in a £1 rescue deal.

Inquiries into the collapse of Silicon Valley Bank (SVB) and its UK arm have been announced in Britain and America, as financial markets settled and banking shares recovered from Monday’s turmoil.

In the US, prosecutors at the Department of Justice (DoJ) as well as the stock market regulator, the Securities and Exchange Commission (SEC), are conducting separate investigations into the collapse of California lender SVB, which was taken over by the government after a run on its deposits.

The two investigations, first reported by the Wall Street Journal, are only preliminary and therefore might not lead to any charges or allegations of wrongdoing. Such inquiries are not unusual when companies unexpectedly suffer large losses.

The report said the authorities are also examining stock sales made by executives at parent company SVB Financial Group in the days before the bank failed.

Hours earlier, a group of SVB shareholders sued the parent company, SVB Financial Group, and two of its top executives, in what many expect to be the first of several likely lawsuits over the bank’s collapse.

The proposed class-action lawsuit accuses SVB Financial Group’s chief executive, Greg Becker, and chief financial officer, Daniel Beck, of concealing how rising interest rates would leave its SVB unit “particularly susceptible” to a bank run.

US regulators moved on Sunday night to roll out emergency measures to prevent contagion from SVB’s collapse, having transferred ownership of the bank’s assets and liabilities to the Federal Deposit Insurance Corporation (FDIC), a government agency. Regulators said they would ensure all customers would be able to access their money on Monday morning.

In the UK, politicians on parliament’s influential Treasury select committee have written to the governor of the Bank of England, and the economic secretary of the Treasury, askingk them about the collapse of SVB’s UK arm and what it means for regulation of banks since the financial crisis.

The correspondence comes ahead of a Tuesday 28 March meeting, when MPs will hear evidence from the governor, Andrew Bailey, and other senior leaders at the Bank.

Before the hearing, the committee’s cross-party MPs asked Bailey how SVB UK was supervised before its collapse, and how HSBC was chosen as the buyer of SVB UK, in a £1 rescue deal.

They are also asking economic secretary, Andrew Griffith, which other support options the government was considering for SVB UK, and whether the Treasury sought assurances from HSBC on its approach to the UK tech industry as a condition of the purchase.

Harriett Baldwin, the chair of the Treasury committee, called the rescue deal “the best possible outcome achieved in incredibly challenging circumstances”.

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She added: “Yet, while it’s reassuring that taxpayer funds were not required in this instance, a number of questions remain around the effectiveness of bank regulation and resolution procedures, especially for smaller banks with a significant presence in strategically-important industries.”

US banking shares rebounded on Tuesday, recovering some of Monday’s heavy losses, when fears of an escalating banking crisis gripped markets.

Regional bank First Republic, of San Francisco, jumped more than 50% on Tuesday, having fallen 62% the previous day. Western Alliance, headquartered in Phoenix, Arizona, jumped 40% on Tuesday.

The S&P 500 index was up almost 2% at noon in New York.

The rally came despite ratings agency Moody’s lowering its outlook on the US banking system to negative, citing a “rapidly deteriorating operating environment”.

In London, the FTSE 100 rallied by more than 1%, regaining almost half of Monday’s losses. The index of blue-chip shares gained 88.5 points to 7637 points, with bank stocks among the risers.

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