Silicon Valley Bank: FTSE 100 tumbles 2.5%; HSBC rescues SVB UK – business live | Business

Over in parliament, City minister Andrew Griffith is updating MPs about the situation with Silicon Valley Bank.

Griffith explains that the government has acted to limit the damage to the UK’s tech and life sciences sector.

He confirms that the goverment, working in concert with the Bank of England, has facilitated the purchase of SVB UK by HSBC early this morning.

HSBC are Europe’s largest bank, listed in London, with 39 million customers globally,

Griffith says:

Those affected are now secure, in the knowledge that their deposits are protected and they can bank as normal.

Customers should not notice any changes he says, adding;

The wider UK banking system remains safe, sound and well-capitalised.

Griffith says the government used stabilising powers granted in the 2009 Banking Act.

We have forstalled disruption in the tech sector, and supported confidence in the UK financial system.

Ouch. Britain’s blue-chip share index has posted its biggest one-day fall since last summer.

The FTSE 10 index has just closed for the day down 199.7 points at 7548 tonight, as the markets were rocked by the fallout from the collapse of Silicon Valley Bank.

That is the FTSE 100’s lowest close since 3rd January, meaning it has lost most of its gains in early 2023 in the last few weeks since hitting record hight in February.

It’s a fall of 2.58%, the biggest one-day fall since early July last year.

Bank shares ended in the big fallers, with Standard Chartered down 6.9% and Barclays losing 6.3%.

The FTSE 250 index of medium-sized UK companies also had a rough day, losing 2.75%.

But the big losses today remain in US regional banks, where some big names are nursing some major falls:

Charles Archer, markets analyst at IG, writes that there are “real questions over whether regulators have now opened the financial floodgates” with last night’s rescue package:

Late on Sunday, US regulators announced that ‘depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.’ They also guaranteed deposits at the smaller and similarly troubled Signature Bank.

While shareholders, most creditors, and the bank itself will be allowed to collapse unless a buyer can be found, there are now real questions over whether regulators have now opened the financial floodgates. Depositors at any failed bank will now demand similar treatment over deposit security, and while this step was clearly necessary to maintain financial stability, there is an argument to be made that this was a Pandora’s Box that should have stayed firmly shut.

Despite regulatory reassurance, Western Alliance Bank has seen shares fall by 75%, First Republic Bank by 67%, and PacWest Bancorp by 35%. Internationally, banks as large as HSBC and Barclays see smaller share price falls, while troubled Credit Suisse has fallen to its lowest ever market value as default swaps hit another record.

There is a risk that depositors at smaller banks will withdraw cash in favour of the security of those presumed to be too big to fail. This risk is compounded by the speed of social media — panic can now spread at lightning speed.

Billionaire investor and hedge fund manager Bill Ackman is calling on US banking regulators to explicitly guarantee all deposits now.

“Hours matter,” he says in a tweet.

The current scheme guarantees up to $250,000.

Ackman says:

We also need a modern version of our deposit insurance regime, but that will take some time, and that’s ok as long as all deposits are guaranteed in the interim.

Ackman also argues that regional bank stocks are an “incredible bargain” right now as long as the government does the “right thing”.

Ackman also suggests that Warren Buffett (who recommends being greedy when others are fearful) may be investing in regional banks as their shares slide.

This is not without real risk, but it does offer very attractive asymmetry. I would be surprised if Warren isn’t putting capital to work in his favorite regional banks now.

Economics professor Joseph Stiglitz says that the collapse of Silicon Valley Bank represents more than the failure of a single company. Instead, it shows deep failures in the conduct of regulatory and monetary policy.

Stiglitz writes:

Like the 2008 crisis, it was predictable and predicted. Let’s hope that those who helped create this mess can play a constructive role in minimising the damage, and that this time, all of us – bankers, investors, policymakers, and the public – will finally learn the right lessons. We need stricter regulation, to ensure that all banks are safe. All bank deposits should be insured. And the costs should be borne by those who benefit the most: wealthy individuals and corporations, and those who rely most on the banking system, based on deposits, transactions, and other relevant metrics.

It has been more than 115 years since the panic of 1907, which led to the establishment of the Federal Reserve system. New technologies have made panics and bank runs easier. But the consequences can be even more severe. It’s time our framework of policymaking and regulation responds.

The UK government cleared the way for HSBC to buy the British arm of Silicon Valley Bank by waiving certain restrictions on what types of customers could be taken on by its UK retail bank.

HSBC was given an exemption over rules that do not allow complicated corporate customers to be housed within ring-fenced banks, Andrew Griffith, the City Minister, said in a letter Monday to the Treasury Select Committee.

He later told Bloomberg TV that neither the government nor the Bank of England gave HSBC any guarantees. More here.

Joe Biden’s words of reassurance today have done little to calm markets as “worries raced around that other smaller US banks could become the latest dominos to fall”, says Susannah Streeter, head of money and markets at Hargreaves Lansdown:

Streete explains:

His admission that fresh regulations may be needed to stop further failures exposes weaknesses in the current system and now lawmakers will be asked to toughen the rules. So, even though the collapse has centred on a small tech-focused corner of the financial system, the fall-out risks spreading. The era of cheap money has hurtled to an end and investors are waking up to some dramatic highly unintended consequences.

The wider banking system will bear the brunt of the bail out of banking customers, as the money will come from fees institutions pay into the deposit insurance fund.

The realisation that regulatory action isn’t stopping the rot has led to sharp falls in some of Wall Street’s biggest banking names in early trade such as Wells Fargo down 7.5%, Citigroup down 6%, and Bank of America down 7%. Despite the pretty bold regulatory action investors have still been shaken by the events of the past few days and are highly nervous about spilling over and creating pools of fresh problems.

The freefall of shares in a raft of smaller lenders including First Republic bank, Western Alliance Bancorp and PacWest Bancorp shows the extent of the contagion concerns with shareholder confidence evaporating.