US SVB Tripled Insider Loans Several Months Before Bankruptcy

On the 10th, Silicon Valley Bank (SVB) in the United States, which filed for bankruptcy, was found to have significantly increased the loan amounts to insiders such as executives in the fourth quarter of last year, just a few months before its bankruptcy.

On the 21st (local time), Bloomberg cited government statistics and reported that as of the fourth quarter of last year, SVB had loaned $219 million (approximately 286.2 billion KRW) to employees and major shareholders. This amount is 3.3 times higher than the previous record set in the prior quarter. It is also 5.9 times the loan amount in the second quarter, when the Federal Reserve's interest rate hikes began in earnest.

Silicon Valley Bank Photo by Reuters Yonhap News

The government data did not provide specific details about the borrowers or the purposes of the loans. Regarding this, Bloomberg stated that insider lending alone does not constitute illegal activity.

However, a spokesperson for the U.S. Federal Reserve (Fed) said that since the Fed and Congress are investigating the collapse of SVB, if any issues related to insider lending are found, the supervisory authorities will be tasked with conducting an investigation. According to U.S. federal regulations, bank executives must not receive preferential treatment when borrowing from their financial institutions, and banks must submit the number and scale of insider loans to supervisory authorities. In response, SVB Financial, the parent company of SVB before its bankruptcy, explained through a proxy statement that SVB provided loans under similar interest rates and collateral conditions as other customers.

Additionally, Bloomberg reported that the Fed had already requested SVB to improve its interest rate risk management methods at the end of last year. This was because SVB incurred $15 billion in unrealized losses on mortgage-backed securities (MBS) it held as of the end of last year due to the impact of the base interest rate hikes.

Moreover, 63% ($46.8 billion) of SVB's loan portfolio last year consisted of large loans of at least $20 million, indicating a high risk of default. SVB Financial expressed concerns in its annual report last year, stating, "(SVB's) loan portfolio is largely composed of large loans, making it likely that a single customer default could occur."

Earlier, on the 10th, the California Department of Financial Protection and Innovation closed SVB after a massive withdrawal of deposits led to liquidity shortages and insolvency, appointing the Federal Deposit Insurance Corporation (FDIC) as the bankruptcy receiver. Just a week after the bankruptcy, on the 17th, the parent company SVB Financial also filed for bankruptcy protection with the authorities. SVB Financial currently holds $2.2 billion in liquidity, and its court filing listed assets and liabilities each amounting to $10 billion.