One year on from Silicon Valley Bank collapse

SNEAK PEEK

― Silicon Valley Bank collapsed a year ago: what’s changed?

― Ministers gather for U.K. Global Fraud Summit.

― Labour assembles crack team to advise on National Wealth Fund.

Happy Monday! Welcome to another week of financial services news and views.

To kick off the week we have an amazingly insightful review into a year on from the SVB collapse. Also, the latest on the Home Office’s fraud summit, and Bim gets busy with banks. 

Elsewhere, the City watchdog provides its thoughts on a report on sexism in financial services.

Strap yourself in for another week of finance bliss. Enjoy!

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DRIVING THE DAY

SVB ANNIVERSARY: Yesterday marked the one-year anniversary of the collapse of Silicon Valley Bank. The main failure was in the US, where regulators are trying (against significant pushback) to toughen rules, but what has happened in the U.K. since the subsidiary was sold to HSBC via the resolution regime?

Subsidiarization: The Bank of England got lucky with SVB’s U.K. arm, as regulators had made the decision to subsidiarize it in the summer prior, meaning it could be placed into resolution. Usually smaller banks would be put into insolvency, threatening depositors’ funds above the U.K.’s compensation threshold of £85,000. Immediately after the collapse of SVB, senior BoE officials said they would consider changing when smaller banks are upgraded from branches to subsidiaries, and therefore subject to the resolution regime. Nothing appears to have happened on this front since. 

Liquidity: Banks have to hold high-quality liquid assets to fund cash outflows for a one-month period, so they don’t immediately run out of money if flighty depositors pull their funds. But SVB blew through this: In the case of SVB U.K., £2.9 billion in deposits (30 percent of its base) was withdrawn in a day on March 9, 2023 (in the U.S., it was over $40 billion). There’s a question about whether this speed was enabled by social media (see below), but regardless, regulators including PRA chief Sam Woods acknowledged that liquidity rules, known as the Liquidity Coverage Ratio, might need revisiting. The Financial Stability Board (FSB) is examining interest rate and liquidity risk in the financial system, with a report due only in October.

Resolution: Banks are divided over who should pay for the failure of smaller lenders. The Treasury’s consultation closed last week, with large banks unwilling to pay for the collapse of smaller banks, and even smaller banks wanting a carve-out for certain financial institutions. UK Finance, an industry group which represents banks of all sizes, said in its response that members are split — and questioning whether only small banks will benefit. UK Finance members want the costs to the industry to be below or equal what they would be if a bank were to be placed into insolvency.

Social media: There are differing views regarding to what extent social media caused the bank run that depleted SVB’s liquidity, after views rapidly spread online that the bank was experiencing huge losses. The FSB, as part of its report due for Oct. publication, will also look at depositor runs in light of new technologies and social media. Any standards recommended by the FSB would unlikely become law until well into 2025. 

Bottom line: In many ways, SVB was a unique case, given its singular tech industry depositor base, the number of accounts with deposits way over the £85k compensation threshold, and a suddenly increasing interest-rate environment. Regardless, it’s been one year since the SVB meltdown, and there’s been a lot of talk about more stringent regulation… but in reality very little has actually happened. If another smaller bank were to fail today, it’s unclear the regulators would be able to say they could have done anything differently.

WHAT’S ON

Monday, City minister Bim Afolami and Swiss ambassador to the U.K. Markus Leitner host a summit on the U.K.-Swiss financial services agreement, 10:15 a.m. London. Day one of U.K. government global fraud summit, 9 a.m. London.

Tuesday, Bank of England publishes Mortgage Lenders and Administrators Statistics for Q4 2023. Office for National Statistics publishes U.K. labour market for March 2024. House of Commons Treasury Committee: Oral evidence session with OBR on the 2024 budget, 10 a.m. House of Lords Economic Affairs Committee oral evidence session on how sustainable national debt is with Bim Afolami, 3 p.m. Day two of U.K. government global fraud summit.

Wednesday, Office for National Statistics GDP monthly estimate, U.K. (January 2024), 7 a.m. House of Commons Treasury Committee oral evidence session with Jeremy Hunt on the 2024 budget, 2 p.m. Institute of International Finance “The March 2023 Banking Turmoil: One-Year Anniversary Analysis and Lessons Learned” event, from 8 a.m. Pensions and savings symposium, from 9 a.m.

Thursday, EBF and S&P Global Market Intelligence “Navigating the Green Asset Ratio (GAR): What can it tell us about the sustainability performance of banks?” event, 2 p.m. London.

Friday, Bank of England: Consolidated worldwide claims (Q4 2023), 9 a.m. Bank of England/Ipsos Inflation Attitudes Survey (February 2024), 9:30 a.m.

**A message from Nationwide: Unlike the banks, Nationwide Building Society is owned by its members, not shareholders. That’s anyone who banks, saves or has a mortgage with us. Which means we can always focus on what’s best for them. It’s our fundamental difference and what makes us a good way to bank.**

FRAUD

ANOTHER SUMMIT: Home Secretary James Cleverly plays host to international counterparts for a two-day summit dedicated to tackling online fraud, beginning today at Lancaster House. There’ll also be tech companies and banks in attendance, though don’t expect the likes of Sir Nick Clegg and other big wigs.

Why global? Britain says it’s necessary to hold the summit to jumpstart an international response to a crime that is reaching epidemic proportions, and whose origins often cross borders. Fraud is now the single biggest crime in the U.K., and much of it originates online via platforms like Facebook Marketplace. Re-read our piece on this from last month for a primer. 

On the guestlist: Ministerial representatives from G7 and Five Eyes allies, including the U.S., Australia, New Zealand, Canada, France, Germany and Italy, as well as Singapore, Japan and South Korea, plus the Interpol and Europol police agencies, will be there.

Outcomes, outcomes: Cleverly is hoping to get a communiqué out of the door on Monday that will see law enforcement agencies pledge to cooperate more — as well as work more closely with the private sector — in tackling fraud. On the latter, the U.K. says November’s voluntary Online Fraud Charter provides a template for other nations to follow.

In words: “Fraudsters have no regard for boundaries, they devastate citizens in all our countries,” Cleverly said ahead of the summit. “We will only put a stop to this scourge if we fight it head on together, and that’s precisely what we plan to do.”

Where’s Sir Nick? The Home Office says senior tech leaders will also be in attendance. But we’re told the government didn’t give enough notice to secure attendance from the very biggest names. Lower level lobbyists are expected, rather than the likes of “Machiavelli of Meta” Nick Clegg.

ECONOMY

CALLING IN THE CAVALRY: Shadow Chancellor Rachel Reeves announced on Sunday that Labour has appointed a new taskforce of financial experts to advise the party on how to implement its flagship National Wealth Fund. 

Who’s who: Taskforce members include Mark Carney, former Governor of the Bank of England; Amanda Blanc, CEO of Aviva; C.S. Venkatakrishnan, CEO of Barclays; Hugh Crossley, CEO of Equitix; David Vickers, the CIO of Brunel Pensions and Carol Young, Group CEO of USS. The independent Green Finance Institute will provide the secretariat for the taskforce and GFI CEO, Rhian-Mari Thomas, will serve as chair.

The group will…look at what mechanisms are needed to get private capital into the fund, what policy measures can incentivize investment and how best to develop a pipeline of investable projects. 

Reeves said: “A Labour government can only deliver changes to our economy by working alongside business. The lifeblood of economic growth is private sector investment which can create good jobs and spread productivity in every part of the country, and the National Wealth Fund will be a crucial tool in our armory towards bringing about that growth.”

**Berlin Playbook, the newest addition to POLITICO’s Playbook family, launched! Täglich informieren wir Sie darüber, was am vor Ihnen liegenden Arbeitstag wirklich zählt. Die aktuellsten Ereignisse aus Kanzleramt, Bundestag und den politischen Zentren der Welt. Mit nur einem Klick anmelden.**

TRADE

BRITS ABROAD: TheCityUK is heading to the U.S. today for a three day visit to Washington D.C. and New York City. The industry body is bringing a senior delegation of U.K. financial and professional services bosses to meet government officials and senior industry members from the U.S. Treasury, U.S. Trade Representative, the Securities and Exchange Commission, British American Finance Alliance and the American Enterprise Institute, among others. Items on the agenda include digital assets, a U.K.-US data bridge, and artificial intelligence in financial services. 

DONE DEAL: City minister Bim Afolami and Swiss ambassador to the U.K., Markus Leitner, will host a summit on Monday in London to discuss the U.K.-Swiss “Berne Financial Services Agreement.”

What is it: Three months on from the signing of the mutual recognition agreement, Afolami and Leitner will speak with industry figures in Guildhall on what the deal will mean for financial services in both countries, with a panel discussion and Q&A held throughout the morning. Doors open at 10:30 a.m., with the event running from 11 a.m. to 12:30 p.m. 

DIVERSITY AND INCLUSION

SEXISM AND THE CITY REGULATORS: There is an “important” role for regulators to play in fighting sexism and achieving progress on representation within financial services, the FCA said in response to a report from MPs. The Treasury Committee’s report — Sexism in the City — published last week, found significant issues remain. But, at the same time, MPs recommended FCA proposals, written with the PRA, to boost diversity including via quotas and reporting be withdrawn because of the burden placed on financial services companies.

Priorities: The FCA said it welcomed the feedback, and said it would consider recommendations from the MPs as well as from other parties. This year, the FCA said it will prioritize proposals that tighten expectations on firms to tackle misconduct such as bullying and sexual harassment. 

PAYMENTS

PAYMENTS VISION COMING SOON: The government will publish a National Payments Vision this year in response to an independent review on the future of payments. The publication will come “as soon as possible” later this year, the Treasury said on Friday. Joe Garner’s independent Future of Payments Review found that the U.K.’s payments landscape is congested and would benefit from a clear overall strategy. The review also provided recommendations, such as unlocking the potential of Open Banking. Garner will work as an advisor to the government on the National Payments Vision. 

CRYPTO

WORLDCOIN EYES BAN APPEAL: Worldcoin, a cryptocurrency company based on biometrics and co-founded by OpenAI CEO Sam Altman, is challenging a temporary ban in Spain. The country’s data protection authority on March 6 ordered the project to stop gathering and using data like eye-scanning for three months over privacy concerns. A spokesperson for the company said it respects the General Data Protection Regulation and has filed a lawsuit. 

WHAT WE’RE READING

Rachel Reeves warns of challenge facing Labour if the party wins election, writes the Financial Times.

I’ll squeeze benefits to fund more tax cuts for workers, says Rishi Sunak in the Sunday Times.

NatWest hires City law firm as it tools up for Nigel Farage battle, writes the Sunday Telegraph.

Richard Branson in line for £650 million when Nationwide completes takeover of Virgin Money: also in the Sunday Times.

Thanks to: Vincent Manancourt, Clothilde Goujard, Fiona Maxwell and Izabella Kaminska.

**A message from Nationwide: Fraud is the most prevalent crime in the UK, costing victims £12.8 billion in 2021-22, and more needs to be done to protect consumers from fraud and scams. Nationwide is calling for the creation of a central “hub” that brings together multiple industries – from big tech and social media to telecoms and financial services – alongside government and law enforcement to share data and collaborate to tackle fraud. We believe there should a cross-industry solution, with liability for costs of reimbursement sitting across all organisations in the “fraud chain” including social media platforms. Find out more.**