What is a Zombie Bank?

Answer 1

A Zombie Bank refers to a financial institution with an economic net worth that is less than zero, but which continues to operate because its ability to repay its debts is shored up by implicit or explicit government credit support. The term was first used by Edward Kane in 1987 to explain the dangers of tolerating a large number of insolvent savings and loan associations and applied to the emerging Japanese crisis in 1993. Zombie institutions face runs by uninsured depositors and margin calls from counterparties in derivatives transactions. They engage in high-stakes gambles for resurrection that undermine industry profit margins and spread insolvency to healthy competitors. If their insolvency is left unresolved, more and more institutions fall into distress and a crisis develops when the wisdom of the government's bailout program comes increasingly to be called into question.

Answer 2

A Zombie Bank refers to a financial institution with an economic net worth that is less than zero, but which continues to operate because its ability to repay its debts is shored up by implicit or explicit government credit support. The term was first used by Edward Kane in 1987 to explain the dangers of tolerating a large number of insolvent savings and loan associations and applied to the emerging Japanese crisis in 1993. Zombie institutions face runs by uninsured depositors and margin calls from counterparties in derivatives transactions. They engage in high-stakes gambles for resurrection that undermine industry profit margins and spread insolvency to healthy competitors. If their insolvency is left unresolved, more and more institutions fall into distress and a crisis develops when the wisdom of the government's bailout program comes increasingly to be called into question