China and Other SVB-Entered Countries on Alert for 'Domino Effect'... "Liquidity Support"

Major Banks Seek Emergency Acquisition of SVB Local Subsidiary

Governments around the world have launched emergency responses to the bankruptcy of the U.S. Silicon Valley Bank (SVB), the second-largest bank in U.S. history to enter the resolution process. Authorities in the UK, China, and Israel, where SVB operates, have taken swift action to prevent a domino effect of bank failures and mass bankruptcies among startups.

According to major foreign media including Bloomberg on the 12th (local time), UK Prime Minister Rishi Sunak said, "We are working to understand the anxieties and concerns of bank customers" and "We are looking for ways to ensure their necessary operating funds and cash flow are secured." He added, "I do not see systemic contagion risk related to the bankruptcy of SVB's UK branch," drawing a line on the possibility of risk spreading.

When asked whether the Treasury would present a solution by the opening of financial markets on the 13th, he avoided a direct answer, saying, "We are working quickly." Regarding rumors about establishing an emergency fund to guarantee deposits, he dismissed them as speculation and said, "We are looking at many different issues."

Earlier, UK Chancellor of the Exchequer Jeremy Hunt issued a statement that morning, saying, "We will immediately implement measures to meet the short-term operating funds or liquidity needs of SVB UK branch customers." UK authorities are expected to announce liquidity support measures for companies transacting with SVB's UK branch as early as the 13th. Chancellor Hunt said he is discussing this as a top priority with Andrew Bailey, Governor of the Bank of England (BOE), and Prime Minister Sunak.

More than 250 representatives of UK startups and IT companies warned the day before that they face the threat of simultaneous bankruptcy due to SVB's collapse and urged government intervention. They warned, "Loss of deposits could cause serious damage to the IT sector and set the corporate ecosystem back 20 years," adding, "Many companies will be forced into liquidation overnight."

SVB's subsidiary, SVB UK branch, reportedly has about 650 employees and thousands of corporate clients, many of whom are known to be IT startups, according to The Times.

The BOE announced on the 10th that SVB UK branch would enter bankruptcy but said it does not have a significant presence in the UK financial system. Under the UK Deposit Protection Scheme, deposits are protected up to ?85,000 (approximately 135 million KRW).

Discussions are also underway regarding the possible acquisition of SVB. Sky News reported that UK banks such as Barclays and Lloyds have received urgent acquisition proposals for SVB UK branch. There are also reports that Middle Eastern capital has shown interest.

[Image source=Reuters Yonhap News]

Chinese regulatory authorities also convened an emergency meeting last weekend to discuss the impact of SVB's bankruptcy. Foreign media reported that at this meeting, the Shanghai Pudong Development Bank's acquisition of shares in SVB's local branch was proposed as one of the countermeasures.

SVB's China branch has served as a funding source for Chinese companies in the life sciences sector. Chinese cancer treatment developer Zai Lab, which has offices in Shanghai and San Francisco, disclosed that as of the end of 2020, $23 million (approximately 30.4 billion KRW), or 2.3% of its cash assets, was tied up in SVB.

The Israeli market, where SVB operates, is also on high alert. The Israeli Securities Authority notified listed companies to immediately disclose any material changes that could affect stock prices, citing potential impacts from SVB's bankruptcy. The IT sector is a key driver of Israel's economy and maintains close ties with Silicon Valley.

Israeli Prime Minister Benjamin Netanyahu said, "I am discussing the SVB crisis with the finance and economy ministers and the central bank governor to see if there are necessary measures for domestic companies facing liquidity difficulties due to this incident." He added, "We have a duty to protect companies operating and existing in Israel and their employees."

Our government is also closely monitoring the possibility of increased volatility and uncertainty in financial markets due to the SVB incident and has urgently assessed domestic impacts. On the 12th, Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho, Financial Services Commission Chairman Kim Ju-hyun, and Financial Supervisory Service Governor Lee Bok-hyun held a meeting at the Bankers' Hall in Jung-gu, Seoul, stating, "The government and related agencies will monitor the situation closely 24/7 and respond swiftly if necessary to thoroughly manage and prevent the adverse effects from spreading to our economy."