Do privately owned banks ever indefinitely lend money to their owners? By privately owned bank, I mean specifically a bank that is not registered as a corporation with publicly tradable shares.

Does it ever happen that such banks create money by lending it to their own owners? The owners could simply borrow the money indefinitely, and spend it on luxury goods, keeping the bank in debt until they die, at which point they don't care anymore. 

e.g. if the bank starts out for the first time, and obtains 1 B in cash deposits which it has as reserves, it could have a 10% reserve ratio, and lend 900 B to the owners, which they use to party and buy yachts. The other 100 M they keep as reserves.

Assuming a bank run doesn't occur, this can be stable indefinitely.

Does this ever happen? examples? or why not?

e.g. if it does not happen, is that because it is illegal, or are there incentive reasons intrinsic to banking why it would never happen?
Bank regulations vary by country, but it is a safe bet that they would frown upon having such a concentrated loan portfolio. Furthermore, there are presumably restrictions on lending to related parties, but how that would be defined would definitely vary by jurisdiction.

By doing a quick search on the internet, it was possible to find this FDIC letter about concentration risk. Link to FDIC page On that page is a link to a PDF which indicates that concentration risk is defined as 25% of capital. Unless the owners can get others to buy capital of the bank (which is unlikely if the only business plan of the bank is to lend money to the owners), the owners can only lend themselves back 25% of the money they put in before the regulators shut them down. (And in practice, I doubt that regulators would even let them get close to 25% of capital for related party lending.)

From a business perspective, it's not as if deposits can be attracted for free. The bank has to either pay interest for deposits, or else has to offer services (branches, ATMs, lending) which requires employees and cost money. A bank could not survive without having a lending portfolio that is paying a market rate of interest.

Finally, the bank needs equity, provided by the owners. Any sweetheart lending deals the bank offers the owners would reduce the profits on their equity. If the bank does not have a credible business plan, it is not going to attract other investors to supply capital needed for regulatory purposes.

The Savings and Loan Crisis in the United States offers a lot of examples of the breakdown of the regulation of small banks, but even then, the self-dealing was generally hidden.