UK regulators react to SVB failure

The Bank of England has decided that many foreign banks will have to divvy up their deposits and set up UK subsidiaries with their own capital and supervision requirements. "The BoE said it had noted that the UK's openness to foreign banks 'may increase the risk of contagion', and its decision was 'in part a response to lessons learned from the failure of Silicon Valley Bank'," said the FT. "SVB collapsed in 2023 as part of turmoil in the US banking sector caused by rising interest rates, causing the failure of its UK operation, which had to be rescued by arranging its sale for £1 to HSBC." The Bank of England said the new regime would maintain the country's "very open" approach to international banking while filling a regulatory gap. A key problem for SVB and its UK subsidiary (which had £6.7 billion in deposits) was that many depositors were wealthy business owners and small businesses whose deposits vastly exceeded the £85,000 deposit insurance threshold, making surplus deposits ineligible for coverage, though that limit is now being increased to £110,000.