After frantically withdrawing money from Silicon Valley Bank (SVB) out of fear of losing access to their savings, UK tech companies are pouring cash into rivals Revolut, Wise, and other London fintech firms.
According to Revolut, the number of transfers received from Silicon Valley Bank on Saturday, Mar. 11, was 16.6 times more than usual. Sunday's transactions, Mar. 12, may be much higher.
Due to a flurry of withdrawals from the bank by tech companies, California authorities shut down SVB on Saturday.
Meanwhile, as reported by Evening Standard, the UK branch of SVB will cease operations immediately, including processing payments and taking deposits. This was after the Bank of England said it would seek to put the bank into a Bank Insolvency Procedure.
Switching to Rival Banks
Fred Destin, the founder of Stride, a London-based venture capital firm, recently announced that some of his portfolio firms were switching their deposits to the digital banking platforms Revolut and Wise.
Destin explained that many new businesses have had difficulty establishing banking ties. And, if you are a startup, you may have all of your cash at home.
A possible scenario is that the Bank of England announces it will freeze SVB's assets to halt a potential run, he said. As a result, individuals starting businesses have little option but to safeguard their financial assets.
Destin acknowledges that both Wise and Revolut have straightforward onboarding processes and are fully regulated financial institutions, allowing clients to shift large sums of money into them.
Seb Wallace, a venture capital investor at Triple Point, stated, "The standard operating procedure in venture-back businesses would be to open an account from one of Starling, Revolut, Monzo and others [and] most startups have a Wise account. But this [collapse] has rammed home a prudent cash management approach and firms have a clear need now to have multiple bank accounts to spread risk."
Another venture capitalist who requested anonymity told Evening Standard that to diversify their cash management, IT companies were investing in TreasurySpring, a cash management fintech company in London.
Entering Insolvency
In September 2022, SVB's operations in the UK transitioned into a wholly owned subsidiary. In an effort to relieve anxiety, the company informed its UK customers on Saturday, as well as its partners and external stakeholders, that it had a strong financial position as a completely separate, independent financial institution in the eyes of UK authorities.
The bank, however, has now admitted that it has become insolvent.
"We are announcing that following conversations with the Prudential Regulatory Authority, there is an intention, barring any intervening event, to put Silicon Valley Bank UK Limited into insolvency from Sunday evening."
