The writer is economic secretary to the Treasury
In a matter of days in March, Silicon Valley Bank went from sending warning signals to full-scale collapse — one of the fastest in the history of finance.
Alarm bells began ringing in the Treasury early on the morning of Friday March 10, but they weren’t the familiar chimes of Big Ben; they meant trouble.
I won’t discuss the exact decision-making process, but the Treasury machine — in lock-step with the Bank of England — ran at full steam that weekend. We worked all hours to support a deal, in which HSBC acquired SVB UK for the symbolic price of £1, in order to contain the problem and protect the tech sector — a critical industry for growing the UK economy.
I learnt many things during this episode, not least the commitment of the Treasury and BoE officials who rose to the challenge. But what struck me the most was the agility and stability of our finance sector in the face of a crisis.
A quotation often attributed to Mark Twain famously says that “history never repeats itself, but it does often rhyme”. Thanks to the reforms we put in place after the global financial crisis, those words rang true, and we avoided the mammoth systemic issues we saw in 2008.
Put simply: the British arm of SVB fell under UK rules, which made it infinitely easier to sell to a buyer without any cost to the taxpayer. That’s because it was subject to higher capital requirements and rules which separated its capital and liquidity from its parent company over the Atlantic. And with the urgency of finding a solution before markets opened on the Monday, the fact we had control of our own rule book was a vital asset.
The system worked.
The government’s objective now is to use the opportunities provided to us by Brexit to make the system even better. And our “Edinburgh reforms” are the blueprint for this.
There has been speculation about whether these reforms have any place in a prudent, well-run financial system. Let me reassure you: they do.
Our reforms will ensure stability and promote growth in several ways. They will remove EU measures which are inappropriate to the UK to overhaul London’s listing regime; they will liberalise what insurers can invest in; and they will review some post-crisis regulations such as ringfencing measures to address any unintended consequences that might get in the way of growth.
Put it this way: if you take a plane from London City Airport to Edinburgh, you want your pilots to use a checklist that ensures your safety. A checklist with too few items puts that safety at risk. But using a checklist the length of the Oxford English Dictionary would also increase risk by distracting the pilots from their job of flying the plane safely.
Just as a good checklist gets passengers safely and quickly from A to B, so a good and proportionate regulatory system can help businesses fly — helping grow the UK economy at the same time.
The government’s changes certainly aren’t about stripping away important protections. On the contrary, they represent a targeted and thoughtful approach to make them more effective.
Working closely with regulators, we are moving towards proportionate and simple regulation that works for the UK and will help drive growth in the economy, while maintaining crucial safeguards for financial stability. The key is to maintain a system that can face down or deal effectively with market shocks like the collapse of SVB.
The events of the past few years, from the Covid-19 pandemic to the war in Ukraine and economic volatility, have demonstrated the resilience of our financial system. But they also show the need for a focus on growth.
The measured changes to our regulatory regime that this government is taking forward will cement the position of Britain’s financial services sector at the heart of these efforts.
