SHARES in the country’s leading banks fell sharply today amid the ongoing fall-out from the collapse of Silicon Valley Bank in the US, which led to its UK arm being taken over by HSBC this morning.

The UK Government and the Bank of England moved quickly to secure the sale of Silicon Valley Bank UK over the weekend to prevent the contagion of the collapse of parent SVB on Friday spreading through the UK financial system. Fears had been mounting that the SVB failure, the biggest banking collapse since the financial crash of 2008/2009, could spark a raft of firms going bust on this side of the Atlantic.

This morning it was announced that the UK ring-fenced subsidiary of HSBC had acquired SVB UK for £1, safeguarding deposits of around £6.7 billion and loans of £5.5bn.

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However, shares in leading UK banks NatWest Group (owner of Royal Bank of Scotland), Lloyds Banking Group (owner of Bank of Scotland), Barclays, Virgin Money (formerly Clydesdale Bank) and HSBC fell sharply as investors sold off banking stocks.

By the end of the day, shares in Barclays had tumbled by 6%, NatWest had fallen by 4.8%, and Lloyds by 5.1%. HSBC and Virgin closed down 4% and 9% respectively.

And there was a banking sell-off in the US too, with Wells Fargo and Bank of America falling more than 7% on opening before recovering slightly, as President Joe Biden intervened to say the US banking sector was safe in a bid to calm markets.

Stockbroker Hargreaves Lansdown observed that investors had rushed to safe haven assets amid the upheaval, with gold prices rising and government bond yields falling.

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Susannah Streeter, head of money and markets, said: “Joe Biden’s words of reassurance did little to calm markets as worries raced around that other smaller US banks could become the latest dominoes to fall.

“His admission that fresh regulations may be needed to stop further failures exposes weaknesses in the current system and now lawmakers will be asked to toughen the rules. So, even though the collapse has centred on a small tech-focused corner of the financial system, the fall-out risks spreading. The era of cheap money has hurtled to an end and investors are waking up to some dramatic highly unintended consequences.”

Russ Mould, investment director at AJ Bell, said: “Despite the best efforts of governments and regulators, the market was still very edgy on Monday as investors considered the fall-out from SVB’s collapse. There’s plenty to worry about whether it be the conflict in Ukraine, inflation, rising interest rates and now a potential banking crisis has been added to the mix. Little surprise people are feeling a bit spooked.

“For now, the panic which set in late last week appears to have been contained but whether the market can regain the confidence which saw the FTSE 100 hit a record high earlier this year remains to be seen.”

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US regulators intervened at the tech-focused SVB following a run on the bank that had its roots in a decision to invest customer deposits in long dated bonds, the value of which fell as interest rates rose over the last 12 months.

Wealth manager Evelyn Partners observed that the bank had not hedged against this risk, leaving it with a large unrealised loss. Evelyn noted that SVB had sold its most liquid bond holdings to meet deposit demands, which undermined earnings at the bank and the value of its balance sheet, and as concern grew over its financial position customers began withdrawing their money on Thursday.

The bank was taken over by the US Federal Deposit Insurance Corporation on Friday, by which time investors had begun selling off banking stocks in Europe as concern grew over the risks to the financial system.

Helena Di Biase, managing partner of Raising Partners, which specialises in securing funding for early-stage companies, told The Herald that “it’s safe for us to assume a fair number of Scottish companies will have been impacted by SVB’s collapse”.

Ms Di Biase said: “Now that HSBC has assured the safety of deposits, attention is turning to how they will manage the other areas of SVB’s operations, namely the supply of competitive venture debt for growing companies.

“The investor community is also not unaffected. Whilst I suspect a very small number of Scottish investors actually hold accounts with SVB... there will be ripple effects in the wider finance markets and depending on a fund or investor’s exposure in other areas, we may see a further contraction in capital deployment as investors focus on securing the future of portfolio companies.”

The deal to sell the UK arm of SVB to HSBC was announced to the stock market this morning, which came as a host of UK companies released statements outlining their exposure to the bank. HSBC said the assets and liabilities of the parent companies of SVB UK were excluded from the transaction, which the bank funded from existing resources.

Noel Quinn, chief executive of HSBC, said: “This acquisition makes excellent strategic sense for our business in the UK. It strengthens our commercial banking franchise and enhances our ability to serve innovative and fast-growing firms, including in the technology and life-science sectors, in the UK and internationally.”