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UK may enforce subsidiary rule on foreign banks after SVB crisis

Bank subsidiary Image credit: William Barton via Shutterstock

The Bank of England is considering a requirement for international banks to operate in the UK as separate subsidiaries instead of local branches, following the crisis at Silicon Valley Bank.

First reported by the Financial Times, the Bank of England is considering the move as part of its review into the collapse of SVB earlier this year. Thousands of British startups and VCs who banked with SVB’s UK subsidiary were at risk of losing their primary source of capital, before HSBC acquired the lender in an eleventh-hour deal.

The move from the Bank of England could see a reduced threshold requirement for foreign banks to establish subsidiaries in the UK.

As one of the largest international tech industry banks in the world, the collapse of SVB had the potential to cause disaster throughout the UK industry. This was avoided in part due to SVB UK being a distinct subsidiary of the mothership with its own separated assets.

As a British subsidiary, SVB UK was immediately put under the protection and control of regulators, which ensured the business could continue operating while a solution was being found.

This simplified the process of HSBC’s acquisition and allowed the UK-based tech industry bank to continue operating with limited interruptions, despite the collapse of its former owner.

There may, however, be a backlash from international banks due to the increased cost of establishing a subsidiary versus operating a branch in the UK.

A spokesperson for the Bank of England told UKTN: “The UK is a very large host to branches of international banks, and that is a necessary condition of running a large financial centre.”

The institution will continue to consider measures to protect UK industries and consumers from international banking collapses.