Loans to Silicon Valley Bank Insiders Tripled to $219 Million Before Collapse

Loans to SVB executives, directors and major shareholders, and other insiders more than tripled to $219 million in SVB’s final months.

As Silicon Valley Bank deteriorated late last year and regulators began to point out internal flaws in its risk management, the bank opened its credit spigot to a group, insiders said.

According to government data, loans to managers, directors, and major shareholders and their related interests more than tripled to $219 million in the final three months of 2022 from the third quarter of last year.

That is a record dollar loan to an insider, going back at least two decades.

A surge in lending to top figures will likely come under scrutiny as the Federal Reserve, and Congress investigate the Silicon Valley Bank collapse, the largest US bank failure in over a decade. The company was one of three major US banks to collapse this month after investors and savers tried to withdraw $42 billion in a single day but failed to raise funds to shore up its finances.

The government report did not disclose the loan recipients or their purpose, and there were no allegations of wrongdoing related to insider lending.

If the loans were problematic, the central bank would take enforcement action or refer the violations to other regulators, a Fed spokesman, who oversaw SVB before its collapse, said.

Before regulators took control of Silicon Valley Bank on March 10, it enjoyed a reputation as the lender of choice for technology companies and venture capital firms. Last year, Fed rate hikes took a toll on the bank, whose liquidity is tied up in long-dated government bonds, which would lose value in this environment.

Under federal regulations that prevent bank executives from receiving preferential treatment, banks can only extend loans to insiders on terms similar to those offered to other customers. To help avoid conflicts, regulators require banks to disclose the volume of such loans and their value publicly.

SVB Financial Group, the parent company of Silicon Valley Bank before its collapse, said in its latest proxy statement that it made loans to related parties last year, including stakes in companies “companies in which certain of our directors or our affiliated venture funds are beneficial owners of 10% or more of their equity securities. “

According to the filing, the bank made the loans in the ordinary course of business, with interest rates and collateral similar to those received by other customers around the same time. Still, different categories of loans, such as real estate and business, grew much slower than loans to insiders, rising just over 3%, according to data in a separate government report.

Lending to executives and other senior figures has surged as the bank’s weaknesses came to light. Late last year, Fed examiners identified a critical issue that required the bank to improve the way it tracks interest rate risk. The firm ended the year with an unrealised loss of about $15 billion on mortgage-backed securities that it added to when interest rates were low.

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