Allowing Silicon Valley Bank UK to fail would have caused domino effect, FCA suggests

theguardian.com:

Allowing Silicon Valley Bank UK to fail would have caused a domino effect across the City, putting a number of regulated firms at risk of collapse, the boss of the Financial Conduct Authority has said.

The FCA’s chief executive, Nikhil Rathi, outlined the watchdog’s assessments in a letter to MPs on the Treasury committee, as he detailed the hectic weekend of 10 March that started with a bank run on SVB UK’s deposits and ended with authorities facilitating HSBC’s takeover of the bank for just £1.

He said that the FCA’s team – which swelled to more than 60 staff over the weekend in question – started assessing the potential impact of the bank’s potential failure on the Friday morning. It came as panic over the health of its California-based parent company – which was eventually shut down by US regulators – caused many of the UK subsidiary’s nearly 3,000 staff to pull billions of pounds from their accounts.

“Over the next 24 to 48 hours, we sought and analysed a wide range of information regarding SVB UK’s depositors in order to understand the degree to which a bank insolvency of SVB UK would cause harm to consumers and markets,” Rathi said.

“We identified that SVB UK held deposits for over 130 firms regulated by the FCA, including some firms who were safeguarding funds for their own clients and others holding their operational capital with SVB UK.”

While responsibility for the potential wind-up of SVB UK – which had about 3,000 customers – sat with the Bank of England, the FCA soon realised that allowing it to collapse into administration would have caused a domino effect, plunging a number of City firms it supervised into distress and potential failure.

“From our supervisory interactions, it was clear that a number of FCA