Silicon Valley Bank (SVB), a recently bankrupt U.S. small and medium-sized bank, significantly increased the size of loan to insiders, including executives and employees, in the fourth quarter of last year, months before bankruptcy.
Bloomberg reported on the 21st (local time) that SVB lent 219 million dollars to executives and employees, major shareholders, and their stakeholders as of the fourth quarter of last year based on government statistics.
This is 3.3 times SVB previous highest loan amount in the third quarter of last year since 2002, and 5.9 times the second quarter of last year when the aftermath of the U.S. rate hike was in full swing.
Government data do not mention borrowers or the purpose of loans, and it is not an illegal charge just because insider loans were made.
However, Bloomberg observed that such a surge in insider loans could be subject to investigation, as the Fed and Congress are investigating the SVB collapse.
According to related regulations, bank executives and employees should not receive preferential treatment when lending from their agencies, and can only take out loans under similar conditions to other customers.
Authorities are requiring banks to disclose the size of insider loan, and SVB Financial, the parent company of SVB, said it was a normal transaction with similar interest rates and collateral as other customers.
Bloomberg also said that the Federal Reserve System (Fed), the central bank, raised the need to improve its response to interest rate risks to SVB late last year.
In the aftermath of the rate hike, the unrealized loss of SVB’s mortgage-backed securities (MBS) reached $15 billion as of the end of last year.
SVB, which has served as a source of funds for technology companies in Silicon Valley, especially start-ups, rose to 16th in the U.S. bank rankings as of the end of last year thanks to the huge liquidity released after the spread of COVID-19.
SVB invested in U.S. long-term government bonds and mortgage securities with the deposits it collected, but eventually collapsed due to massive deposit withdrawals and a drop in the price of assets worth $42 billion a day amid liquidity drying up in the aftermath of the U.S. high-speed base rate hike.