Concerns Over 'Domino Effect' of SVB Crisis in Countries Including China and the UK (Comprehensive)

IMF "Monitoring Global Financial Impact"

Governments around the world are closely monitoring the situation following the bankruptcy of Silicon Valley Bank (SVB) in the United States, which primarily serves startup companies. Authorities in the UK, China, and Israel, where SVB has operations, have either announced liquidity support plans or emphasized independent management to prevent a domino effect of bank failures and mass bankruptcies among startups, drawing clear lines to contain the risk spread.

According to major foreign media including Bloomberg on the 12th (local time), UK Prime Minister Rishi Sunak said, "We are working to understand the concerns and anxieties 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," dismissing the possibility of risk spreading.

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 plans for companies dealing with SVB's UK branch as early as the 13th. Regarding this, Chancellor Hunt said he is discussing the matter as a top priority with Andrew Bailey, Governor of the Bank of England (BOE), and Prime Minister Sunak.

[Image source=Reuters Yonhap News]

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, "Numerous companies will be forced into liquidation overnight."

SVB's subsidiary, SVB UK branch, has about 650 employees. 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. According to the UK deposit protection law, deposits are protected up to ?85,000 (approximately 135 million KRW).

To resolve the confusion, acquisition by large domestic companies is also being discussed. 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.

Chinese regulatory authorities also convened an emergency meeting last weekend to discuss the impact of SVB's bankruptcy. Foreign media reported that one of the countermeasures proposed at the meeting was for Shanghai Pudong Development Bank to acquire shares of SVB's local branch. SVB's China branch was established with 50% equity each from the Chinese state-owned Shanghai Pudong Bank and SVB.

SVB's China branch has served as a funding source for Chinese companies in the life sciences sector listed on the ‘KeChuangBan (Science and Technology Innovation Board)’, known as the Chinese version of Nasdaq. Zai Lab, a China-based cancer drug developer with 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.

Authorities in Israel, where SVB has also expanded, are on high alert. The Israeli Securities Authority notified listed companies to immediately disclose any changes that could affect stock prices, anticipating 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 have discussed the SVB crisis with the finance and economy ministers and the central bank governor, and we will see if there are necessary measures to support domestic companies facing liquidity difficulties due to this situation."

Meanwhile, the International Monetary Fund (IMF) stated that it is monitoring the impact of SVB's bankruptcy on international financial stability. An IMF spokesperson said in a statement that day, "The IMF is closely watching the developments and potential effects on financial stability, and we have full confidence that US policymakers are taking appropriate measures to respond to the situation."

[Image source=Reuters Yonhap News]