Published on 23rd March 2023

I have sent a paper to the Treasury Select Committee proving how the rescue of SVB UK by HSBC had taxpayer support.

You can DOWNLOAD THE PAPER HERE.

The Governor of the Bank of England (Andrew Bailey) and the Economic Secretary to the Treasury (Andrew Griffith) are appearing before them on March 28th. Mr Griffith appears to take the view that not arranging a rescue would have been bad because SVB UK’s depositors were few in number but had large balances, well above the £85,000 limit under the Financial Services Compensation Scheme (FSCS).

Isn’t this exactly why the limit was set at that level?

The alternative to HSBC’s buying SVB UK would have been for it to have gone into resolution. Eligible depositors would have received up to £85,000 from the FSCS within 14 days. Ineligible depositors would have been issued with capital-like instruments in whatever corporation SVB UK was re-launched as after the resolution process.

No doubt those capital-like instruments would have turned out to be as valuable as the bank itself (now market-tested at £1), or as the user benefits and shareholder returns these depositors promised to their customers and VC investors respectively. The depositors would have been completely reliant on SVB UK’s high-risk loans – to other market actors within the same ecosystem – for any value to be had from these capital-like instruments. Losses would have fallen fully and only on the ecosystem itself. That would have been a suitable finale to this pantomime.

Now SVB UK’s high-risk loan book will be permitted to pollute a UK ringfenced bank, exactly what ringfencing was designed to avoid.