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Anonymous ID: bff0e0 March 12, 2023, 5:59 p.m. No.18495682   🗄️.is đź”—kun   >>5731 >>5787 >>5892 >>5989 >>6094

>>18495574

 

Silicon Valley Bank: Offer made for UK arm of failed US lender

12 March 2023

 

An offer has been made for the UK arm of Silicon Valley Bank (SVB) after it collapsed into administration, putting customer deposits at risk.

 

A consortium of investors led by The Bank of London, a UK clearing bank, has submitted a formal bid to the Treasury.

 

The government has been working "at pace" on a plan to support UK tech firms affected by the collapse of SVB.

 

There have been warnings some could struggle to pay their staff from Monday without intervention.

 

It comes as US customers have been told their deposits will be fully protected by the US government, putting pressure on the UK government to act.

 

Earlier, Chancellor Jeremy Hunt told the BBC there was no risk to the UK's financial system as a whole from the collapse of SVB, but "there is a serious risk to some of our most promising companies in technology and life sciences".

 

Mr Hunt said he had been working with the prime minister and Bank of England governor "through the weekend to come up with a solution", and the government would bring forward a plan in the "next few days".

 

However, Rachel Reeves, Labour's shadow chancellor, urged the government to do more, warning UK start-ups needed to pay staff and maintain investor confidence.

 

"We need, tomorrow morning, to hear from the government, how they are going to protect firms," she said.

 

SVB, which focuses on lending to technology companies, was shut down by US regulators on Friday in what was the largest failure of a US bank since 2008.

 

The bank's UK subsidiary will be put into insolvency from Sunday evening. This will allow individual depositors to be paid up to ÂŁ85,000 from the UK's deposit insurance scheme - however many have far more money than this saved with the bank.

 

The government is looking for a buyer for the UK arm, with other lenders including Barclays and Oaknorth said to be mulling bids.

 

As a clearing bank, the Bank of London does not lend and holds all of its deposits with the Bank of England. Its boss Anthony Watson said: "Silicon Valley Bank cannot be allowed to fail given the vital community it serves.

 

"This is a unique opportunity to ensure the UK has a more diversified banking sector, whilst allowing continuity of service to SVB's UK client base."

 

More than 200 bosses of UK tech companies signed a letter addressed to Mr Hunt on Saturday calling for government intervention.

 

The letter, from Fintech Founders, said many financial technology firms did all of their banking with SVB "and will therefore go into receivership imminently unless preventative action is taken".

 

"The firms affected by the collapse of SVB serve millions of people in the UK along with businesses that are critical to our economy," the letter said.

 

"The cost of inaction here means that these firms could fail in the short-term and your technology growth ambitions will fail in the long-term."

 

Toby Mather, chief executive and co-founder of Lingumi, an education technology start-up, told the BBC his business was very exposed.

 

"85% of our cash is held in Silicon Valley Bank.. [So this] is a really existential threat to us because I've got to pay my employees and they've got kids and mortgages and so on."

 

One source in a tech firm told the BBC the situation could be "pretty terminal" for many UK start-ups.

 

"This Monday, at least 200 firms employing tens of thousands of people will find they can't pay their staff or suppliers because the bank they had an account with has gone bust," the source said.

 

More:

https://www.bbc.com/news/business-64934348

Anonymous ID: bff0e0 March 12, 2023, 6:20 p.m. No.18495809   🗄️.is đź”—kun

==What Is Libor And Why Is It Being Abandoned?

By Miranda Marquit, Benjamin Curry

 

Over the last decade, Libor has been burdened by scandals and crises. Effective January 2022, Libor will no longer be used to issue new loans in the U.S. It is being replaced by the Secured Overnight Financing Rate (SOFR), which many experts consider a more accurate and more secure pricing benchmark.

 

Libor provided loan issuers with a benchmark for setting interest rates on different financial products. It was set each day by collecting estimates from up to 18 global banks on the interest rates they would charge for different loan maturities, given their outlook on local economic conditions. Libor was calculated in five currencies: UK Pound Sterling, the Swiss Franc, the Euro, Japanese Yen and the U.S. Dollar.

 

The London Interbank Offered Rate was used to price adjustable-rate mortgages, asset-backed securities, municipal bonds, credit default swaps, private student loans and other types of debt. As of 2019, $1.2 trillion worth of residential mortgage loans and $1.3 trillion of consumer loans had been priced using Libor.

 

While Libor is no longer being used to price new loans, it will formally stick around until at least 2023. One-week and two-month Libor have ceased being published, while overnight, 1-month, 3-month, 6-month, and 12-month maturities will continue to be published through June 2023.

 

Each day, 18 international banks submit their ideas of the rates they think they would pay if they had to borrow money from another bank on the interbank lending market in London.

 

It’s important to note that Libor isn’t set on what banks actually pay to borrow funds from each other. Instead, it’s based on their submissions related to what they think they would pay. As a result, it’s possible for banks to submit lower rates and manipulate Libor fairly easily.

 

In the past, a panel of bankers oversaw Libor in each currency, but scandals exposing manipulation of Libor has led many national regulators to identify alternatives to Libor.

 

Libor is being phased out in large part because of the role it played in worsening the 2008 financial crisis, as well as scandals involving Libor manipulation among the rate-setting banks.

 

The use and abuse of credit default swaps (CDS) was one of the major drivers of the 2008 financial crisis. A very wide range of interrelated financial companies insured risky mortgages and other questionable financial products using CDS. Rates for CDS were set using Libor, and these derivative investments were used to insure against defaults on subprime mortgages.

 

American International Group (AIG) was the biggest player in the CDS disaster. The firm issued vast quantities of CDS on subprime mortgages and countless other financial products, like mortgaged-backed securities. The crash of the real estate market in 2007, followed by the even larger market meltdown in 2008, forced AIG into bankruptcy, resulting in one of the largest government bailouts in history.

 

Once AIG started falling apart, it became clear that failing subprime mortgages and the securities built on top of them weren’t properly insured, many banks became reluctant to lend to each other. Libor transmitted the crisis far and wide since every day Libor rate-setting banks estimated higher and higher interest rates. Libor rose, making loans more expensive, even as global central banks rushed to slash interest rates.

 

With rates on trillions of dollars of financial products soaring day after day, and fears about stunted bank lending reducing the flow of money through the economy, markets crashed. Libor was only one of the many factors that created the financial industry disasters of 2008, but its key role in transmitting the crisis to all parts of the global economy has driven many nations to seek safer alternatives.

Libor Manipulation

 

In 2012, extensive investigations into the way Libor was set uncovered a widespread, long-lasting scheme among multiple banks—including Barclays, Deutsche Bank, Rabobank, UBS and the Royal Bank of Scotland—to manipulate Libor rates for profit.

 

Barclays was a key player in this complicated scam. Barclays would submit its Libor estimates, claiming that it was lower than what other banks actually charged it. Because a lower rate supposedly indicates a smaller risk of default, it is considered a sign that a bank is in better shape than another bank with a higher rate.

 

It wasn’t just Barclays, though. At UBS, one trader involved in Libor setting, Thomas Hayes, managed to rake in hundreds of millions of dollars for the bank over the course of three years. Hayes also colluded with traders at the Royal Bank of Scotland on rigging Libor. UBS executives denied all knowledge of what had been going on, although the ring managed to manipulate rate submissions across multiple institutions.

SOFR Is Replacing Libor in the U.S.

 

It’s not just these scandals that undercut Libor. According to ICE, banks have been changing the way they transact business, and, as a result, Libor rate became a less reliable benchmark.

 

SOFR is the main replacement for Libor in the United States. This benchmark is based on the rates U.S. financial institutions pay each other for overnight loans.

 

These transactions take the form of Treasury bond repurchase agreements, otherwise known as repos agreements. They allow banks to to meet liquidity and reserve requirements, using Treasurys as collateral. SOFR comprises the weighted averages of the rates charged in these repo transactions.

 

More:

https://www.forbes.com/advisor/investing/what-is-libor/