Resolution re-imagined: Rescue of SVB UK demonstrates possibilities for UK stabilisation powers

By 10 March 2023, it had become clear that Silicon Valley Bank’s UK subsidiary (SVB UK) was unable to continue to operate as a viable standalone bank following the collapse of its US parent. The Bank of England announced that, absent any meaningful further information, it intended to apply to the Court to place SVB UK into a Bank Insolvency Procedure (BIP) pursuant to one of the available tools under the Special Resolution Regime (SRR) established by the Banking Act 2009 (the Banking Act).

The proposed use of the BIP was consistent with the Bank of England’s stated preferred resolution strategy for firms of the size of SVB UK. Under the BIP, eligible depositors whose deposits are protected by the Financial Services Compensation Scheme (FSCS) would be paid out as quickly as possible up to the protected deposit limit of £85,000. However, any remaining assets and liabilities would be managed and distributed through the liquidation process, which would leave customers whose deposits were not protected exposed to losses. In addition, at a practical level, the bank would stop operating so that customers would not be able to make or receive payments.

In light of this, and as further details emerged about the concentration of SVB UK’s client base amongst UK tech and life sciences companies, the authorities turned their attention over the weekend to other tools under the SRR which would ensure the continuity of banking services for these customers, in order to minimise disruption and support confidence in the UK financial system.

Following a very busy weekend for the Bank of England’s Resolution Directorate, supported by its Legal Directorate and a team from Freshfields, the Bank of England announced at 7.00 a.m. on Monday 13 March that SVB UK had been sold to HSBC UK Bank Plc. This was achieved through the exercise of a stabilisation power which enables the sale of all or part of a failing bank (which may include the transfer of either the bank’s shares or its property) to a willing and appropriately authorised private sector purchaser without requiring consent of the failed bank, its shareholders, customers or counterparties.

In order to use the stabilisation powers, four “Resolution Conditions” need to be met. Broadly, these require that:

• the bank is failing or likely to fail;
• it is not reasonably likely that action by or in respect of the bank will prevent Condition 1 from being met;
• the exercise of the power is necessary having regard to the public interest in advancement of at least one of the special resolution objectives; and
• one or more of the special resolution objectives would not be met to the same extent by the winding up of the bank.

The Bank of England noted in its announcement on Monday that it considered that these Resolution Conditions were met in the case of SVB UK, and that given the emergence of a credible purchaser for SVB UK, it had determined that using its stabilisation powers for failing banks was appropriate. The Bank of England further noted that the action would stabilise SVB UK and ensure the continuity of banking services, minimising disruption to the UK technology sector and supporting confidence in the financial system.

The SVB UK resolution has demonstrated the flexibility of the regime. The stabilisation powers were originally developed as part of the global response to the 2008 financial crisis and aimed at the largest and most systemically important banks. The resolution of SVB UK shows that the tools can be applied and the strategy adapted to allow for particular circumstances to ensure that confidence in the UK’s financial system is maintained. Ultimately, this flexible and proactive approach to the resolution of SVB UK enabled the continuation of business as usual for many of the UK’s most cutting-edge tech and life science companies. Furthermore, it has achieved this without incurring taxpayer expense, and in so doing has bolstered confidence not only in the stability of the UK financial system, but also in the ability of the resolution regime to manage potentially disruptive events.