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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

SVB collapse was ‘fastest since Barings’, Bank of England says, in call for vigilance – as it happened

SVB SVB UK Inflation Andrew Bailey United Kingdom United States Silicon Valley Bank Dave Ramsden Sam Woods The Bank of England

Closing post

Time to wrap up… here are today’s main stories:

European markets close

After a relatively calm day, the FTSE 100 has closed 12 points higher at 7484 tonight, a gain of 0.17%.

Oil giant BP was the top riser, up 2.3%, followed by airlines group IAG (+2.2%), while miners Glencore and Rio Tinto both gained 2% as fears that the banking crisis would trigger an economic downturn faded.

France’s CAC 40 index was 0.2% higher, while Spain’s IBEX gained 0.4% and Germany’s DAX was 0.1% higher.

Just in: Next, the UK high street chain, has agreed to buy fashion and homeware brand Cath Kidston for £8.5m.

The move comes after Cath Kidston fell into administration in 2020.

In a statement to the City this afternoon, Next says:

The Company announces that it has agreed to acquire the brand name, domain names and intellectual property of CK Acquisitions Ltd from the administrators for consideration of £8.5m.

The cathkidston.com domain will be licenced back to the administrators for a period of up to 12 weeks to effect stock clearance, prior to relaunch under the Company’s ownership.

Back in Washington DC, regulators are signalling that the banking sector may see its biggest regulatory overhaul in years.

Federal Reserve Vice Chair for Supervision, Michael Barr, told today’s Senate Banking Committee hearing that:

“The failure of SVB illustrates the need to move forward with our work to improve the resilience of the banking system.”

Bank of England governor Andrew Bailey was right to warn last night that the age of social media makes it more likely that digital bank runs can happen, says Professor Costas Milas, of the Management School of the University of Liverpool.

He explains:

It has already been established that social media, tweets in particular, contain valuable information that predicts movements in financial assets. My own (co-authored) work, for instance, finds contagion effects from “Grexit” tweets across European bond markets. So it is not a surprise that social media creates contagion effects from SVB’s troubles across markets.

The question, for Andrew Bailey and policymakers, is how far we need to go towards regulating social media.

Europeans favour government intervention much more than the public in the United States. This raises the issue of how effective government intervention might turn out to be, in the absence of coordinated governmental actions across the world…

Last Friday’s market turmoil could have been sparked by a single trade in Deutsche Bank bond insurance.

Bloomberg explains;

Regulators are singling out a trade on Deutsche Bank AG’s credit default swaps that they suspect fueled a global selloff on Friday.

It was a roughly €5 million ($5.4 million) bet on swaps tied to the German bank’s junior debt, according to people familiar with the matter, who said regulators have spoken to market participants about the transaction. The contracts can be illiquid, so a single bet can trigger big moves.

Back in the UK, Gary Lineker has won his battle with HMRC over a £4.9m tax bill.

The tax authorities had told the Match of the Day host, who operates his own company and works on a freelance basis for the BBC and BT Sport, that he should have been classed as an employee, my colleague Mark Sweney reports.

The former England striker had appealed to a tribunal in relation to the action by HMRC, linked to the off-payroll working rules or IR35 legislation, which argued that in fact he was a “disguised employee”.

However, on Tuesday a judge ruled that Lineker was a freelancer who had direct contracts with the two broadcasters.

FDIC chairman Martin J. Gruenberg also told the Senate Banking commitee that “The state of the U.S. financial system remains sound despite recent events”.

Gruenberg explained that the FDIC has been closely monitoring liquidity, including deposit trends, across the banking industry, adding:

Since the action taken by the government to support the banking system, there has been a moderation of deposit outflows at the banks that were experiencing large outflows the week of March 6.

In general, banks have been prudently working preemptively to increase liquidity and build liquidity buffers.

FDIC Chairman Martin Gruenberg then explains that Silicon Valley Bank and Signature Bank were “allowed to fail”, in a way that guaranteed deposits.

Shareholders lost their investment, unsecured creditors took losses, and the boards and most senior executives were removed, Gruenberg tells the Senate Banking Committee.

Updated

Over in Washington, policymakers are also probing the collapse of Silicon Valley Bank.

The Senate Committee on Banking, Housing and Urban Affairs has begun a hearing into SVB.

Committee chair, senator Sherrod Brown, says the collapse of SVB left its customers worried that they not be able to pay their staff, due to venture capitalists “panicking on Twitter” and fuelling the bank run at the bank.

Brown says:

Once again, small businesses and workers feared they would pay the price for others’ bad decisions.

“The scene of the crime” does not start with the regulators who will testify today, Brown adds, pointing the finger instead at mismanaged banks and an industry that lobbied for looser regulations during the Trump administration.

The committee must consider how banks such as SVB and Signature Bank “exploded in size”. Brown continues. He says the underlying causes are “Hubris, entitlement” and “greed”, saying executive pay at SVB was tied to growth at the bank.

Brown also lashes the venture capitalists who fuelled Silicon Valley Bank’s growth by telling their clients to keep their money at SVB, only to then fuel this month’s bank run by telling them to take their money out, causing more chaos and panic.

Brown says pointedly:

Just as there are no atheists in foxholes, it appears that when there is a bank crash there are no libertarians in Silicon Valley.”

Updated

US consumer confidence increased slightly in March

US consumer confidence has increased a little this month, despite the turmoil in the banking sector.

The Conference Board’s Consumer Confidence Index, just released, increased slightly in March to 104.2, up from 103.4 in February, and higher than expected.

Although consumers were slightly less optimistic about the present economic situation, their economic expectations nudged up a little.

The cutoff date for the survey was March 20th, about ten days after the bank failures in the United States.

Ataman Ozyildirim, senior director for economics at The Conference Board, explains:

“Driven by an uptick in expectations, consumer confidence improved somewhat in March, but remains below the average level seen in 2022 (104.5). The gain reflects an improved outlook for consumers under 55 years of age and for households earning $50,000 and over.”

“While consumers feel a bit more confident about what’s ahead, they are slightly less optimistic about the current landscape. The share of consumers saying jobs are ‘plentiful’ fell, while the share of those saying jobs are ‘not so plentiful’ rose.

The latest results also reveal that their expectations of inflation over the next 12 months remains elevated—at 6.3 percent. Overall purchasing plans for appliances continued to soften while automobile purchases saw a slight increase.”

Updated

On Wall Street, the S&P 500 index has opened in the red.

The broad index of US stocks has dipped by 0.2%, down 8 points at 3,969 points.

Regional bank stocks are marginally lower, although First Citizens – which is taking over much of Silicon Valley Bank – are up 5%, following a 50% surge on Monday.

FTX's Bankman-Fried charged with bribery conspiracy in new indictment

Over in New York, US prosecutors have unveiled a new indictment against Sam Bankman-Fried.

The founder of the FTX cryptocurrency exchange is accused of conspiring to violate anti-bribery provisions of the Foreign Corrupt Practices Act.

Federal prosecutors in Manhattan accused Bankman-Fried of directing the transfer of at least $40m of cryptocurrency to benefit Chinese government officials.

In a court filing, they asked U.S. District Judge Lewis Kaplan to arrange a court hearing so Bankman-Fried can be arraigned on the new, 13-count indictment, Reuters reports, adding:

The 31-year-old former billionaire had previously pleaded not guilty to eight counts over the collapse of FTX. Prosecutors say Bankman-Fried stole billions of dollars in customer funds to plug losses at Alameda Research, his crypto-focused hedge fund.

A spokesman for Bankman-Fried did not immediately respond to a request for comment.

Back in the markets, this morning’s small rally in London has rather petered out.

The FTSE 100 index of blue-chip companies is now down 5 points, at 7466 points, having been as high as 7524 points this morning.

The smaller FTSE 250 index of medium-sized firms is down 0.85%.

France’s CAC 40 has lost its earlier gains too, with bank shares hit by news of raids by French prosecutors today (see earlier post). Société Générale are down 2.4%, while BNP Paribas has lost 1.4%

Updated

European Central Bank President Christine Lagarde was the passenger in a car that was involved in an accident last week and suffered a “very minor injury,” Bloomberg reports.

“The president’s car was involved in an accident on Friday afternoon after she left the Euro Summit in Brussels,” a spokesperson said, adding:

“She was not driving. No one was seriously hurt.

The president suffered a very minor injury and – after a medical examination — is wearing a neck brace while fulfilling all her duties as normal.”

US house prices rose in January, despite the pressure of higher interest rates.

Average US house prices were 0.2% higher than in December, according to the Federal Housing Finance Agency (FHFA)‘s seasonally adjusted monthly House Price Index.

On an annual basis, house prices rose 5.3% from January 2022 to January 2023.

On the economics front, America’s goods deficit has widened unexpectedly.

The US ran a deficit in international trade in goods of $91.6bn in February, up from $91.1bn in January, new official figures show.

The fall was due to a drop in exports, which may signal that net trade is a drag on economic growth in the first quarter of this year.

Economists had expected a small drop in the gap between imports and exports of goods, to around $91bn in February.

Updated

There’s drama in the French banking sector today too.

Investigators have searched the offices of several large banks in Paris on Tuesday, including BNP Paribas, Société Générale and HSBC.

These are the first French raids connected to the so-called “cum-ex” tax evasion scandal, the Financial Times reports, adding:

The raids were linked to five preliminary investigations launched in 2021 on alleged money laundering and fiscal fraud charges, France’s financial prosecutor’s office said in a statement.

The cum-ex scandal, which has led to raids and investigations in Germany, is centred around the alleged evasion of taxes and fraudulent scheme around dividend payments.

Bloomberg reports that French banks face collective fines of more than €1bn (£880m) as part of the investigation into tax fraud and money laundering related to dividend payments.

Updated

Full story: Silicon Valley Bank collapse was fastest since Barings, says BoE governor

The governor of the Bank of England has admitted he was surprised by how quickly Silicon Valley Bank failed, saying it was the fastest demise of a lender since Barings Bank collapsed in the mid-1990s.

Andrew Bailey told MPs on the Treasury select committee it had been decades since a lender had gone from “health to death” within a matter of days, saying that Barings Bank – which was brought down by the rogue trader Nick Leeson – was the only worthwhile comparison to what happened to the US tech lender.

When asked by the committee’s chair, Harriett Baldwin, whether the events that led to the rescue of Silicon Valley Bank (SVB) “came out of left field” and whether he was “taken by surprise,” Bailey agreed.

“In my experience, which goes back 30 years now, it’s probably … the fastest passage from sort of health to death, really, since Barings, actually,” Bailey said. Barings, he explained, “was a sort of Friday to Sunday thing, and this was pretty similar”.

Barings Bank, which was the City’s oldest merchant bank, collapsed in 1995, when Leeson ran up huge losses after concealing as much as £827m in unauthorised trading positions. Barings was bought by Dutch bank ING for a nominal sum of £1, though much of its assets were later sold off.

Here’s the full story:

Bank of England faces MPs: the key points

Here’s the key points from the Treasury Committee’s hearing on the collapse of Silicon Valley Bank UK:

The collapse of Silicon Valley Bank was the fastest since Barings failed in the 1990s, the governor of the Bank of England has said, revealing he was surprised by the speed of its demise.

Andrew Bailey warned the Treasury committee, which is investigating the sale of SVB UK to HSBC for £1, that:

“We are in a period in very heightened, frankly, tension and alertness.”

Bailey told MPs that the failure of SVB this month was the fastest passage from “health to death, really, since Barings”, which was brought down by rogue trader Nick Leeson in 1995.

Deputy BoE Governor Dave Ramsden agreed on the need for vigilance, saying:

“We’ll keep a close eye on bank funding costs, what the consequences of those could be for households and businesses, equally looking out for other risk factors, we have to remain incredibly vigilant.”

Bailey insisted, though, that the UK banking sector was in a strong position, despite the turmoil in the sector.

He said that there had been several offers for SVB UK during the weekend after its parent company collapsed, but that it took until 4am on Monday 13th to know that a sale to HSBC would go ahead – that’s just three hours before it was announced.

Bailey said that recent market turmoil, such as last Friday’s wobble, was a sign that the global markets are testing “quite a lot” of the banking sector, rather than in response to specific problems.

He insisted that the UK would not follow Switzerland’s move, of wiping out holders of AT1 bonds before shareholders (as occurred in the Credit Suisse rescue).

Bailey said he did not believe authorities should implement 100% protection of all bank deposits.

And he cautioned that there is some evidence of that financial conditions are tightening, and that the Bank would lower its countercyclical capital buffer if the credit supply to economy is under threat.

Updated

Andrew Bailey then repeats his point from last night’s speech, that the rise in early retirements has led to a tighter labour market.

Bailey: We'd act if banking turmoil hit credit supply

Onto the impact of the banking turmoil on lending conditions…

And Bank of England governor Andrew Bailey tells MPs that its regional agents around the country have seen “some evidence” of tightening in credit conditions but this was not critical at the moment.

The UK banking system still has ample capacity to lend, he tells the Treasury Committee.

Q: What would you do if that changed?

Bailey says the first move would be to lower the countercyclical capital buffer [which determines how much capital a bank must hold] if it thought credit supply to the economy was threatened.

He says:

What would we do if we if we felt that capacity to support credit in the economy was compromised in any way or threatened?

Well, the first thing we do ... is to lower what we call the CCyB, the countercyclical capital buffer.

The Bank did that before, when the Covid-19 pandemic began, and it would do it again, Bailey says.

Bailey adds that the Bank’s Financial Policy Committee publishes its summary and record next week….

… but is corrected by deputy govenor Sir Dave Ramsden – it’s actually out tomorrow.

“I’ve been up too many nights,” bemoans Bailey, putting his hand to his head wearily.

Conservative MP Andrea Leadsom accuses the banking sector of a ‘heads I win, tails you lose’ approach.

Q: Are you content that SVB and Credit Suisse will reportedly continue to pay bonuses to their staff? In what other sector, if your business fails, do you get a bonus?

PRA chief Sam Woods agrees that this isn’t a typical situation. But he makes a distinction between what happened with Silicon Valley Bank in the UK, and in the US.

Woods points out:

There have already been quite severe consequences for executives who held any of their wealth in the stock of these banks.

He predicts there will be “quite significant consequences” in the US.

Andrew Bailey points out that bank bonuses are deferred in the UK, and can be clawed back in some circumstances.

Updated

Bailey: 100% deposit guarantee should not become the norm

Conservative MP Danny Kruger turns to the moral hazard question within bailouts, and whether all bank deposits should be guaranteed if a bank fails.

BoE governor says he agrees with US Treasury secretary Janet Yellen that it should not be the norm that all bank deposits are guaranteed.

Q: So what is your view of the actions of US authorities (by guaranteeing all deposits at Silicon Valley Bank)?

Bailey says they had to take action promptly, and did so. He knows how bad these decisions can be, so he’s not going to criticise the US authorities.

The question is then how you work the system out from their, Bailey adds:

I would not support, and I think this is exactly what Janet Yellen has said, the idea that 100% deposit guarantee becomes a norm.

[currently, the US rules guarantee up to $250,000 of deposits, compared to £85,000 in the UK].

Updated

Bailey: Creditor hierachy is a cardinal principle

Bank of England Governor Andrew Bailey then tells MPs that creditor hierarchy was a “cardinal principle” in the UK – after it was surprisingly changed in the emergency rescue of Credit Suisse by UBS.

Labour MP Rushanara Ali asks:

Q: were you surprised that holders of Credit Suisse’s equity received some relief, while the holders of AT1 bonds were wiped out?

Bailey cautions that we don’t know the full circumstances which the Swiss authorities faced [in the deal, Credit Suisse shareholders receive around 3 billion Swiss francs].

His understanding is that the Credit Suisse’s additional tier one (AT1) bonds have a different contractual clause than most other AT1 bonds – and certainly those issued by UK banks – which allow the wipe-out under certain circumstances (Bailey won’t say more, as there may be legal challenges ahead).

In Britain, Bailey says, AT1 bondholders would not be treated as they were by the Swiss authorities this month.

He tells the Treasury committee that the BoE did not want UK banks to include such clauses, adding:

“In any resolution we will always abide by the code of hierarchy because that’s a cardinal principle.

AT1 bonds are riskier than other bonds, and are generally designed to convert into equity if the bank which issued hits problems.

Investors who held $17bn of Credit Suisses’s AT1’s were startled to find they were being wiped out in the UBS deal.

Onto the emergency takeover of Credit Suisse by UBS, which Labour MP Emma Hardy compares to a ‘car crash in slow motion’.

Q: Shouldn’t regulators have taken greater steps, earlier, to prevent this smash?

Bank of England Governor Andrew Bailey says he can’t speak for the Swiss regulators.

He agrees that Credit Suisse managed to “stack up a lot of problems” over a long time (indeed!).

Bailey says its collapse was not due to concerns over solvency per se, but due to questions over the viability over the bank given the severe restructuring its CEO was undertaking.

Bailey says Credit Suisse received a ‘critical blow’, when its major shareholder said it would not put more money in (yesterday, the chair of the Saudi National Bank resigned after those comments sent CS’s shares slumping two weeks ago).

He adds that Credit Suisse “was experiencing a run”, as depositors lost confidence in its viability going forwards, even though it was in a strong solvency position.

Sam Woods adds that it would be a bad thing if other commercial banks try to negotiate their own exemption from the UK’s ring-fencing rules, in any future rescue deal.

Updated

Q: What would have happened if HSBC had developed cold feet and run away at 3am on Monday morning?

In this counterfactual, the BoE governor says that the insured deposits (up to £85,000) would have been paid out in full.

The remainder, though, would have been paid out as the bank was wound up, though an insolvency procedure.

Andrew Bailey says there is a “very reasonable chance” they would have been paid out in full, eventually.

But, the liquidity of those businesses would have been hit in the meantime (making it hard for them to meet payroll payments, for example).

Updated

HSBC were ‘very clear’ that they needed a waiver over the UK’s ring-fencing rules, to allow it to takeover SVB UK, PRA chief Sam Woods tells the Treasury committee.

Ring-fencing requires banking groups to separate their retail banking services from their investment and international banking activities.

Those rules do not allow complicated corporate customers to be housed within a ring-fenced bank, for reasons of financial stability.

Bailey: SVB UK received a number of possible offers

John Baron, Conservative MP, asks why the Bank changed course over SVB UK over the weekend of 11th and 12th March.

Q: Why did you switch from planning to place SVB UK into an insolvency proceedure, to pursuing a sale?

Andrew Bailey reveals that the Bank couldn’t guarantee that a sale could take place until 4am on Monday morning (13th March).

[That followed frantic talks over the weekend, and meetings between the government and UK tech firms].

Bailey says it became clear over the weekend that a sale was possible – on Friday evening, the Bank couldn’t say that.

He’s ‘very pleased’ that a sale was agreed, given the importance of SVB UK’s clients to the UK economy (many were tech and life science start-ups).

Bailey says the insolvency procedure was being worked on until 4am on the Monday, when the sale option hardened up [PM Rishi Sunak was monitoring events as he flew to the US].

Labour MP Angela Eagle asks:

Q: So were other banks interested, apart from HSBC who acquired SVB for a pound?

Andrew Bailey says SVB set up a data room over the weekend, and “quite a few people” came in to have a look.

There were “a number of possible offers” for Silicon Valley Bank, during the weekend rescue talks, the BoE governor reveals, telling the Treasury committee that:

Most of them don’t turn into anything real and then occasionally you get ones where they set conditions and you say ‘no sorry, we can’t do that’.

But by around 7pm or 8pm on Sunday evening, HSBC was the only option left, the governor says.

On the Sunday evening before the HSBC deal was announced, UK clearing bank the Bank of London confirmed said it had submitted a rescue bid for the UK arm (but that offer was not accepted by regulators).

Anthony Browne MP adds that the run at Silicon Valley Bank was so quick because “a few VC funds told all their clients to withdraw their money” in a few WhatsApp messages.

Those clients were also compelled to hold all their deposits at SVB, Browne points out.

PRA chief Sam Woods says that the Bank of England felt that confidence had been lost in SVB UK, due to what happened at its parent company, even though SVB UK had the capital strength to handle its outflows.

Woods adds that the concentration of individual firms with deposits at one bank, and a concentration of (tech-savvy) customers, did affect the speed of the bank run, and is something that the BoE should consider in its regulation.

Updated

Conservative MP Anthony Browne turns to the speed of Silicon Valley Bank’s collapse

Q: On Thursday 9th March, you believed Silicon Valley Bank UK met all the regulatory requirements…. it collapsed the next day. Does that mean your supervisory regime isn’t fit for purpose?

Andrew Bailey shoots back that it isn’t reasonable to expect a subsidiary to survive the collapse of its parent company.

The situation would have been very different, though, if regulators hadn’t made SVB UK into a separate subsidiary, and if it had remained simply a branch network of the California-based lender, the governor explains.

Bailey insists that SVB UK was a well-capitalised subsidiary, with strong liquidity – it had the cash buffers to handle the loss of 30% of its deposits in a single day (when the panic began).

That strength allowed regulators to find a buyer for SVB before the UK markets reopened on Monday morning.

Bailey says:

Frankly, if a bank is not solvent going into the weekend, that becomes immeasurably harder.

PRS chief Sam Woods says regulators do not want commercial banks to keep enough reserves at the BoE to cover 100% of their deposits. Such a ‘zero-failure’ regime would have significant costs, in terms of lending to the real economy, he explains.

Bailey: we're in period of very heightened tension and alertness

Andrew Bailey reiterates that the markets are trying to find ‘points of weakness’ in the banking sector.

He insists that we are not facing a repeat of the financial crisis 15 years ago.

“I don’t think we are at all in the place we were in in 2007-08. We are at a very different place to then.

But we have to be very vigilant.

He insists that the Bank is being vigilant, despite its belief in the strength of the UK banking sector.

As Bailey puts it:

I do not want to give you for a moment the idea that we are not very vigilant, because we are.

We are in a period of very heightened, frankly, tension and alertness and we will go on being vigilant.

Deputy governor Sir Dave Ramsden says the Bank is keeping a close eye on bank funding costs, and the consequences of those changes on households and businesses.

Ramsden also channels the v-word, adding:

We have to remain incredibly vigilant.

Key event

Q: Will the Bank of England’s stress tests need to reflect the speed at which people can move their deposits, electronically, rather than having to queue at a bank?

Sam Woods, CEO of the Prudential Regulation Authority, agrees that the Bank needs to think about this.

He says:

All of us can move money from our accounts in as short a time it will take me to answer this question. That is a relatively new feature of the market.

The speed at which news can pass these days through communities, including through private messaging, is another factor, he adds.

A third factor is the “concentrated basis” of the deposits at SVB UK, Woods continues – a reference to its customer base of tech start-ups.

Andrew Bailey then touches on the turmoil in the markets last Friday, when Deutsche Bank’s shares took a tumble.

He says these "sharp market movements” are a sign that the strength of certain institutions is being “tested out” by the markets, rather than being based on “identified weaknesses”.

Bailey says:

There is quite a bit of testing out going on at the moment.

Bailey: UK banking sector in strong position

Q: Have things settled down in the banking sector? Is March’s turmoil behind us?

BoE governor Andrew Bailey says the US authorities are still dealing with some of the consequences of the issue on their regional banks.

[Yesterday, US regulators agreed a deal under which most of Silicon Valley Bank is being taken over by First Citizens, a North Carolina lender].

Credit Suisse (which was rescued the weekend after Silicon Valley Bank) is “rather an institional-specific issue”, Bailey says.

And he insists that the UK banking sector is in a strong position – both in terms of capital, and liquidity.

Bailey: SVB was fastest collapse since Barings

The hearing begins, with Treasury committee chair Harriett Baldwin asking if the Bank was surprised by the sudden collapse of Silicon Valley Bank this month.

Q: Did it come out of left-field? Were you taken by surprise?

Governor Andrew Bailey says he would agree with that.

The collapse of SBV UK’s parent bank, in the US, was probably the fastest collapse the governor can remember in his 30-year career.

Bailey compares Silicon Valley Bank’s passage “from health to death” was the fastest since the collapse of Barings Bank (which failed in 1995 after rogue trader Nick Leeson ran up huge losses through unauthorised and concealed trading positions).

Barings was “a Friday to Sunday thing”, Bailey reminds the committee, and SVB was “pretty similar” (unlike Credit Suisse, which he says was a much more drawn-out affair.)

SVB, the governor, says “was a very fast passage to failure”.

Updated

MPs hold Silicon Valley Bank UK hearing - watch live!

Over in parliament, the Treasury Committee is about to quiz top leaders from the Bank of England about the collapse and rescue of Silicon Valley Bank UK.

You can watch the session here (or at the top of this blog):

As explained in the opening post, MPs will hear from the Governor of the Bank of England, the Chief Executive of the Prudential Regulation Authority and the Bank’s Deputy Governor for Markets and Banking.

They are expected to examine how SVB UK was supervised before its collapse, how HSBC was chosen as a purchaser, and what lessons can be learnt about the regulation of the banking sector.

As well as SVB UK’s sale to HSBC for £1, the Committee will cover wider stresses in the banking sector, including implications for the UK of the failure of Credit Suisse.

The witnesses are:

  • Andrew Bailey, Governor, Bank of England

  • Sir Dave Ramsden, Deputy Governor for Markets and Banking, Bank of England

  • Sam Woods, Chief Executive Officer, Prudential Regulation Authority and Deputy Governor for Prudential Regulation, Bank of England

Updated

Andrew Bailey’s claim that the rise in inactivity driven by early retirement has led to higher interest rates to tackle inflation (see earlier post) has not impressed Neil Wilson, analyst at Markets.com.

Wilson writes:

Bank of England governor Andrew Bailey loves to play the blame game.

One minute he’s accusing greedy workers of demanding too much pay; now it’s the fault of early retirees for pushing up inflation. When will he ever admit that maybe the Bank was far too slow to rein in ultra-loose monetary policy as the pandemic ended? The Bank of England was not alone, of course, but he should still take it on the chin.

Less the unreliable boyfriend and more the lying husband who got caught with lipstick on his collar but won’t admit it.

The pound has inched higher against the US dollar this morning, up a quarter of a cent at $1.231, following Bailey’s speech to the LSE last night.

Susannah Streeter, head of money and markets at Hargreaves Lansdown:

Governor Andrew Bailey stressed in his speech in London last night that interest rates may have to move higher if there were signs of persistent inflationary pressure. For now, policymakers don’t see a threat to financial stability in the UK, given that banks are resilient with robust capital positions.

The focus is on sticky prices and consumers are still in a jam with food price inflation hitting fresh record levels according to the British Retail Consortium

Kantar’s latest grocery report (see earlier post) also found that shoppers have begun looking ahead to Easter.

Sales of chocolate eggs are up on last year, despite the surge in prices reported by the BRC this morning.

Kantar says:

Easter Sunday falls slightly earlier this year and chocolate egg sales are already up 6% in volume terms on last year. The ever-popular hot cross bun is also making its way into shoppers’ baskets again, with sales up by 5%.

In the City, the FTSE 100 share index has gained 0.5% in early trading, as fears over the banking sector continue to ease.

The index of blue-chip shares has gained 38 points to 7510 points, the highest since last Thursday, before jitters over Deutsche Bank triggered Friday’s selloff.

Oil giant BP are the top riser, up 1.8%, following a pick-up in the Brent crude price as recession worries ease.

Asia-Pacific focused bank Standard Chartered (+1.5%) are also in the risers.

Grocery technology firm Ocado has gained 1.3%, after reporting a 3.4% year-on-year rise in revenues in the last quarter. Average orders per week at Ocado.com rose by 3.6% to 381,000.

German discount chain Lidl was the fastest growing UK supermarket in March, Kantar reports, with sales rising by 25.8% year-on-year.

That gave Lidl a market share of 7.4%. Aldi secured a new record market share this month at 9.9%, driven by a 25.4% increase in its sales.

Kantar adds, though, that Waitrose saw its fastest sales growth in 18 months.

Morrisons saw a welcome return to growth with sales rising by 0.1%, giving it an 8.8% market share. Waitrose also had a positive period, pushing up sales by 2.1% to deliver the fastest rate of growth for the John Lewis Partnership owned supermarket since September 2021.

Asda’s sales increased by 7.3%, just ahead of both Tesco and Sainsbury’s on 6.9%. Tesco remains Britain’s largest grocer with a 26.9% share of the market, while Sainsbury’s is on 14.8% and Asda 14.3%.

Frozen specialist Iceland performed strongly, increasing its market share to 2.3%, up 0.1 percentage point as sales rose by 9.6%. Convenience retailer Co-op now has a 5.7% share and Ocado’s market share remained at 1.8%.

Updated

UK grocery inflation hits new high of 17.5%

Newsflash: British grocery inflation has risen again to a record high in March.

Market research firm Kantar reports that grocery prices surged by 17.5% over the last year, inflicting yet more pain on households who are battling a cost-of-living crisis.

This will have driven up average household bills by £837 unless shoppers shift their spending to cheaper outlets, or simply buy less.

Market researcher Kantar said prices were rising fastest in markets such as eggs, milk and cheese.

Fraser McKevitt, Kantar’s head of retail and consumer insight, says:

“It’s more bad news for the British public, who are experiencing the ninth month of double-digit grocery price inflation.”

Kantar also found that customers are shopping around for the best value, visiting more shops than usual, and buying more own brand goods.

McKevitt says:

The supermarkets are also tackling grocery price inflation, battling it out to demonstrate value and get customers through their doors. This is a fiercely competitive sector and if people don’t like the prices in one store they will go elsewhere, with consumers visiting three or more of the top 10 retailers in any given month on average.

Supermarket store cards have emerged as an important way to provide value, and for shops to both attract and retain customers.

McKevitt explains:

Store cards have emerged as an important way to provide value amid the high cost of living with the grocer offering cheaper prices, coupons and points for people who scan them at the till.

Our latest data shows that more than nine in 10 of us have at least one loyalty card in our wallets and usage is on the rise.

Early retirement has forced up inflation, says Andrew Bailey

Last night, Bank of England governor Andrew Bailey said the wave of early retirements could force up inflation, leading to higher interest rates.

Speaking at the London School of Economics, Bailey said the exit of older workers from the labour force had pushed up economic inactivity.

That trend, he warned, will drive up prices and mean borrowing costs may need to be higher.

Bailey says:

If those workers have accumulated enough savings to sustain a desired level of consumption much like the one they had before their early retirement, at least for a while, aggregate demand will not have fallen by as much as aggregate supply.

We should expect this to put upward pressure on inflation in a way that would call for a higher level of interest rates to dampen demand.

Last week, the BoE raised Bank rate to its highest level since 2008, to 4.25%.

Bailey signalled last night that a further rise in interest rates remains part of the Bank of England armoury to tackle inflation, despite concerns that steep increases in borrowing costs has undermined confidence in the global banking system.

Andrew Bailey said the UK banking system was “resilient” and had high levels of reserves, allowing the BoE’s monetary policy to concentrate on tackling rising prices.

Bailey said everyone had seen “some big strains on the global banking system emerge” but UK banks were in a strong position, saying:

“We believe the UK banking system is resilient, with robust capital and liquidity positions, and well placed to support the economy.”

Referring to the regulator that oversees banks and forces them to maintain high levels of reserves, he said:

“With the financial policy committee on the case of securing financial stability, the monetary policy committee can focus on its own important job of returning inflation to target.”

Inflation is lingering much longer than analysts had hoped or expected, warns Victoria Scholar, head of investment at interactive investor, following this morning’s BRC shop price data.

Food price inflation is particularly strong given the recent supply issues for salad and vegetables in the UK because of disappointing harvests in Spain and North Africa. When inflation takes its toll on consumer staples, those at the lower end of the income spectrum get hit hardest, exacerbating the cost of living crisis particularly for those in low income households.

But analysts do still expect inflation to cool this year, Scholar adds:

Although the official headline inflation figure remains in double digits, hitting 10.4% in February, the OBR is still confident that price pressures will ease throughout the rest of this year, heading back below 3% by the end of 2023.

However if March and April’s inflation readings continues to show persistent price pressures, there may be revisions to this rosy outlook, particularly if there continue to be issues around sugar production, vegetable harvests and energy costs.”

Updated

888, the gambling company which took over William Hill last year, says it has implemented a “rigorous action plan” to address the failings which led to this morning’s record fine from the Gambling Commission.

An 888 spokesperson says:

“The settlement relates to the period when William Hill was under the previous ownership and management. After William Hill was acquired, the company quickly addressed the identified issues with the implementation of a rigorous action plan.

“The entire Group shares the GC’s commitment to improve compliance standards across the industry and we will continue to work collaboratively with the regulator and other stakeholders to achieve this.”

UK's William Hill fined £19m for widespread gambling failures

Betting firm William Hill has been hit by a record fine by the Gambling Commission.

Three gambling firms owned by William Hill are to pay penalties of £19.2m for failing to protect consumers and weak anti-money laundering controls.

The record penalty comes after the Gambling Commission found “widespread and alarming” issues at the company, which led the commission to give “serious consideration” to spending the firm’s licence.

Andrew Rhodes, the Gambling Commission’s chief executive, explains:

“When we launched this investigation the failings we uncovered were so widespread and alarming serious consideration was given to licence suspension.

However, because the operator immediately recognised their failings and worked with us to swiftly implement improvements, we instead opted for the largest enforcement payment in our history.”

The Commission found that customers were allowed to deposit large sums of money without the companies conducting any checks, the Commission said.

One customer was allowed to open a new account and spend £23,000 in 20 minutes without any checks. Another was allowed to open an account and spend £18,000 in 24 hours without any checks.

The firms also failed to identify certain customers at risk of experiencing gambling related harm, and didn’t carry out checks at an early stage in the customer’s journey. One customer lost £14,902 in 70 minutes.

Gambling harm is a serious issue in the UK; a study in January found that up to a million women are at risk of being harmed by gambling.

A second study, last week, found that gambling addiction rates may be nine times higher than the betting industry claims.

There were also some shocking failures to follow anti-money laundering rules, with customers allowed to deposit large amounts without conducting appropriate checks.

One customer was able to spend and lose £70,134 in a month, another to lose £38,000 in five weeks and another to lose £36,000 in four days

Updated

Fruit and vegetable shortages push UK food inflation to record high

UK households continue to be hit hard by soaring food prices, with annual inflation in British shops reaching its highest in at least 18 years in March.

Food inflation accelerated to 15.0% in March, up from 14.5% in February, new figures from the British Retail Consortium this morning show.

That’s sharply higher than the official CPI inflation rate of 10.4% in February, as prices continue to soar in the shops.

Shortages of fruit and vegetables pushed up prices, the BRC reports, with fresh food inflation accelerating to 17.0% in March, up from 16.3% in February.

That is the highest inflation rate in the fresh food category on record (going back to 2005), illustrating that the cost of living squeeze has not eased.

Helen Dickinson OBE, chief executive of the British Retail Consortium, warned that shop price inflation has “yet to peak” – with rising sugar prices meaning Easter chocolate treats will be expensive.

Dickinson explains:

As Easter approaches, the rising cost of sugar coupled with high manufacturing costs left some customers with a sour taste, as price rises for chocolate, sweets and fizzy drinks increased in March.

Fruit and vegetable prices also rose as poor harvests in Europe and North Africa worsened availability, and imports became more expensive due to the weakening pound. Some sweeter deals were available in non-food, as retailers offered discounts on home entertainment goods and electrical appliances.

Prices of “Ambient food” – such as sauces, soups, preserves, confectionery and cereals – also continued to rise. Ambient Food inflation accelerated to 12.4% in March, up from 12.2% in February, a record high.

Food price inflation disproportionately affects low-income families (food makes up a greater share of their spending, as we all have to eat!), meaning that poorer households suffer a higher inflation rate than average.

Updated

BOE Governor says bank runs quicker in the age of social media

Bank of England Governor Andrew Bailey warned last night that the age of social media and digital banking is causing lightening-quick bank runs.

It’s a hint of what he may tell the Treasury committee later this morning, on the sudden collapse of Silicon Valley Bank (whose customers had rushed to move their money to other accounts once problems emerged at the bank).

Bloomberg has the details:

Bailey said one of the lessons regulators need to learn from SVB is the “speed at which runs can take place” given the technological advances since the financial crisis.

“It is striking that that happened very quickly — word gets around,” he said Monday in response to questions after a speech at the London School of Economics.

“This is very different from the Northern Rock-style queue outside the branch type thing.”

Introduction: MPs to grill Bank of England over SVB UK collapse

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

Fears over the banking sector may have eased this week, but policymakers are keen to understand exactly why several banks collapsed in recent weeks.

This morning, top officials from the Bank of England will be quizzed by the Treasury Committee about the collapse of Silicon Valley Bank UK, and its rescue by HSBC two weeks ago for £1.

The Governor of the Bank of England, Andrew Bailey, will testify alongside Sam Woods, the chief executive of the Prudential Regulation Authority, and Sir Dave Ramsden, the Bank’s Deputy Governor for Markets.

The committee want to learn more about the Bank’s actions to resolve SVB UK, and how the lender – which provided support to many tech start-ups – was supervised before its collapse.

They’ll probably also discuss wider stresses in the banking sector, including the impact of the failure of Credit Suisse on the UK, and what lessons can be learnt about the regulation of the banking sector.

Last night, Bailey insisted in a speech that the UK banking system was resilient, with “robust capital and liquidity positions”, and in a good position to support the economy.

The BoE governor told the London School of Economics:

We have a strong macroprudential policy regime in this country. With the Financial Policy Committee on the case of securing financial stability, the Monetary Policy Committee can focus on its own important job of returning inflation to target.

In a letter to the cross-party Treasury select committee published last week,Bailey revealed the Bank of England had warned US regulators over the risks building at Silicon Valley Bank well before its collapse.

Last night, the White House insisted the US banking system was safe despite stress on some institutions, following the collapse of both Silicon Valley Bank and Signature Bank, and crypto-focused Silvergate, this month.

Asked whether the worst of the banking crisis was behind the country after failed Silicon Valley was purchased with the aid of a government backstop, the White House’s top spokesperson said Americans can be ‘confident’ in their banks.

White House press secretary Karine Jean-Pierre told reporters:

“Because of the decisive actions that we have seen ... from our administration, the banking regulators and also the Treasury Department, the banking system is safe.”

European stock markets are set to open higher, adding to yesterday’s gains after First Citizens, a North Carolina lender, took over most of Silicon Valley’s loans and assets.

The agenda

  • 8am BST: Grocery inflation report from Kantar

  • 9.45am BST: Bank of England gives evidence to Treasury Committee on collapse and rescue of Silicon Valley Bank UK

  • 1.30pm BST: US goods trade balance index for February

  • 2pm BST: US house price index

  • 3pm BST: US consumer confidence report for March

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