Zombie bank

A zombie bank is a financial institution that has an economic net worth of less than zero but continues to operate because its ability to repay its debts is shored up by implicit or explicit government credit support.[1]

The term was first used by Edward Kane in a 1987 article titled Dangers of Capital Forbearance: The Case of the F.S.L.I.C and ‘Zombie S&L’s to explain the dangers of tolerating a large number of insolvent savings and loan associations and applied to the emerging Japanese crisis in 1993.[2][3][4] A zombie bank can continue to operate and even grow as long as creditors remain confident in the relevant government's ability to extract the funds needed to back up its promises from current or future taxpayers. However, when this ability seems doubtful, zombie institutions face runs by uninsured depositors and margin calls from counterparties in derivatives transactions.[2][3]

  1. ^ II, Gene A. Grant. "Zombie Banks Are Among Us, But No Need To Panic". Forbes. Retrieved 2023-07-16.
  2. ^ a b Kane, Edward J. (1989). The S&L Insurance Mess: How Did It Happen?. Washington, D.C.: Urban Institute Press. ISBN 978-0-87766-468-0.
  3. ^ a b Kane, Edward J. (December 1993). "What Lessons Should Japan Learn from the U.S. Deposit-Insurance Mess?". Journal of the Japanese and International Economies. 7 (4). Elsevier: 329–355. doi:10.1006/jjie.1993.1021. ISSN 0889-1583.
  4. ^ "What is a zombie bank? Definition and meaning". Market Business News. Retrieved 2023-07-16.