HSBC has stepped in to buy UK arm of Silicon Valley Bank (SVB) while US regulators safeguard deposits and offer liquidity to wider financial sector through the Bank Term Lending Program.
The dramatic failure of tech start-up focused SVB Financial Group on 10 March was the biggest bank collapse in the US since the 2008 financial crisis.
In early industry reaction to the quickly unfolding situation, Susannah Streeter, head of money and markets, Hargreaves Lansdown, said: ‘'White knights are coming to the rescue after a weekend of intense negotiations to stem contagion from the SVB collapse, which sent shockwaves through financial and tech sectors.
"Investors are waiting with bated breath to see if this rush of regulatory activity to try and limit the fallout from the SVB bank collapse will help soothe volatile markets and so far the bold action appears to be working.
"After a number of offers from smaller banks, HSBC has agreed to scoop up the beleaguered UK arm of SVB, which should end the nightmare thousands of tech firms had been experiencing over the past few days. HSBC shareholders may have some concerns about the bank snapping up assets which have been under such a cloud of uncertainty, particularly the exposure to bonds, but HSBC says it expects a gain to arise from the acquisition.
She continued: "This will be hugely welcomed by the government, given the looming crisis risked overshadowing Budget Day, as a big tech sector bailout would not have been a good look when millions have been told there is little extra money to ease the cost-of-living crisis.
"Concerted action has also been taken in the US and is helping to calm markets. Deposits at SVB and Signature will be guaranteed by the Federal Deposit Insurance Corporation, but crucially generous loan facilities will be provided to other institutions. Other banks also hold big chunk of US treasuries and other bonds which have plunged in value, which was partly why the sector was sideswiped on Friday, given that this sparked SVB's collapse.
"To qualify for the new lending support these assets will be judged at their ‘at par price', when they were issued, and not marked to market, so the recent volatility in bond markets should not affect their ability to access these new Fed funds."
She added: "This is all aimed at malaise spreading to the wider financial sector and, although confidence is being restored, jitters will remain about longer-term repercussions. SVB was considered to be the lifeblood for the tech industry, offering facilities start-ups found hard to access elsewhere in the market, so although the immediate liquidity nightmare looks set to be lifted, worries will still linger about banking options ahead.
"With both Silvergate Capital and Signature Bank collapsing, it's also leaving a gaping hole in financial provision for the crypto sector. There remains an unease about the damage wreaked as the era of cheap money has hurtled to an end. With niggling concerns that mild recessions could be on the way being replaced by a wall of worry about a looming tech crunch, investors will stay on tenterhooks about the direction of interest rates so this week's CPI numbers in the US will be sharply in focus.
"The current turbulence may be unsettling, but long-term investing takes endurance and patience and rather than switching and ditching stocks, riding out the storm is almost always a good strategy when things look rocky. This is the time when the priority should be ensuring investors have a diversified portfolio with a wide range of holdings across different asset classes, sectors and geographies.''
In further reaction, Nigel Green, CEO of deVere Group cited three key takeaways from the SVB's collapse.
First, "The authorities will get some stick, especially from the shareholders of SVB investors. The asset value of the bank itself is zero, and there's no chance of a government bailout for them.
"But the hands of the Fed, the Treasury and regulators, were forced into taking action in order to break the doom loop hitting the banking sector.
"A failure to act would have to be a dereliction of duty. If they hadn't given customers access to their deposits from Monday, it would have resulted in a loss of confidence in the banking system, leading to a ‘run on the banks' which, in turn, would have caused a liquidity crisis in the banking and broader financial system, potentially triggering a full-blown global financial crisis. The authorities couldn't let this happen," he said.
Second, "It brings into question the Trump-era deregulation of banks. The decision to roll back Dodd-Frank's ‘too big to fail' rules, reducing both oversight and capital requirements, seems to have contributed to SVB's collapse.
"It appears that the deregulation has allowed banks like SVB to take reckless risks. Now there needs to be a serious conversation about reversing the law to shore-up confidence and to avoid further collapses."
Third, "It is now doubtful that the Fed will continue with its plan for aggressive interest rate hikes. The next hike was widely expected on March 22 following robust jobs data in January and February.
"We expect the stress in the banking sector, and the wider impact on confidence, now will give the central bank cause for pause on its rate hike program.
"Many will be asking: Was SVB - a major source of funding for US tech start-ups - the first high profile victim of the Fed's higher interest rates agenda?
Green concluded: "The situation is moving quickly and despite the action taken by authorities, it isn't over yet.
"Amongst other issues, there remain fears about contagion and there are real concerns that startups may be unable to pay their bills and salaries in coming days, venture investors may now find it hard to raise funds, and an already-pummelled sector could face a long rout."