Rishi Sunak’s cool head after the collapse of SVB was a political windfall
Rishi Sunak’s handling of the collapse of Silicon Valley Bank was what one actually wants in a government: swift, effective, unshowy competence, writes Eliot Wilson
There are two kinds of politicians: the visionary dreamer who can conjure up the journey to a better tomorrow; and the calm and reassuring technician who will attend to emergencies efficiently, with minimal fuss.
If no one has accused Rishi Sunak and his Chancellor, Jeremy Hunt, of falling into the former category, they may have proved last weekend they can be the latter, as they responded to the crisis which engulfed Silicon Valley Bank.
When US regulators closed down SVB on March 10, it was the biggest failure of a financial institution since the global crisis of 2007/08, and the second biggest bank failure in US history. Silicon Valley Bank had been created – perhaps worryingly, over a game of poker – to cater particularly to start-ups, and supported a large number of tech companies.
Its UK subsidiary is a mainstay of the domestic tech ecosystem: almost a third of UK tech firms bank with SVB. For many, it is their only access to finance. A failure would have had an instant and severe effect on the sector.
Tech businesses have very specific patterns of funding – and consequently very specific needs. They tend to exist as loss-making entities for a long time before achieving profitability, and they need to draw heavily on their bank accounts between investment rounds, which makes them awkward customers for traditional banks. But SVB’s tech-dominated customer base made it, perhaps ironically, unusually vulnerable to an old-fashioned bank run.
If SVB UK had collapsed, the losses to tech firms would have been horrendous, even unsurvivable for many. Only £85,000 is guaranteed in a bank account, and companies would have been unable to pay their staff and suppliers.
The prime minister knows this world: he studied for his MBA in California, worked for investment giants Goldman Sachs and launched a US-based hedge fund in 2010. To his credit, he “got” the problem early on. Downing Street and the Treasury officials abandoned weekend plans, engaged with the tech sector, and a deal was quickly agreed with HSBC. The bank would buy SVB UK for £1, safeguarding account holders’ deposits and allowing the bank to keep going almost without pause.
HSBC has got a good deal. Last year, SVB UK recorded pre-tax profits of £88m. It has deposits of nearly £7bn and loans of around £5.5bn. The parent company now has an experienced, agile foothold in the important tech sector, while SVB UK has the security of HSBC’s size and weight behind it. The Bank of England set its seal on the arrangement: “No other UK banks are directly materially affected by these actions, or by the resolution of SVB UK’s US parent bank. The wider UK banking system remains safe, sound, and well capitalised.” And it cost the taxpayer not a penny.
Politics is a rough business. Gordon Brown was widely praised for his role in tackling the global financial crisis, but was given scant credit when voters came to cast their ballots at the general election in 2010. It would be an optimistic Tory who predicted the saving of SVB UK will lead to an inexorable rise in the government’s fortunes. But the commentariat is very quick to criticise and should at least be willing to praise where it is warranted.
What happened over that recent weekend was what one actually wants in a government: swift, effective, unshowy competence. Jeremy Hunt’s appointment as Chancellor of the Exchequer in the dying, thrashing days of Liz Truss’s premiership was heavily billed as the return of “the grown-ups”: it had an element of truth.
Electoral politics will always require governments to show they are doing, as well as simply doing. The Conservatives’ reputation for competence has taken a battering over many years. But the HSBC deal showed that Whitehall can still act when it has to, and for that, the tech sector and the country more widely should be grateful. More of this, please.