zombie bank

noun
Updated on: 13 Oct 2017

Definition of zombie bank

:a bank that continues to operate despite having liabilities in excess of its assets :an insolvent bank kept in operation especially by government intervention
  • Zombie banks” was the term for Japanese financial institutions propped up by government in the 1990s despite their basic insolvency after a real-estate bubble.
  • —Rich Lowry, The Oregonian (Portland, Oregon)14 Feb. 2009
  • We have zombie banks that are weighed down because their liabilities exceed their assets. Without a precise mechanism for addressing toxic assets, it will be difficult to increase lending.
  • —John Kerryquoted in New York Times11 Feb. 2009

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First Known Use of zombie bank

1988


Financial Definition of ZOMBIE BANK

zombie bank

What It Is

A zombie bank is a bank with liabilities that exceed its assets (in other words, it has a net worth of zero). They do not die (hence the nickname) because they receive government support or bailouts.

How It Works

Let's say Bank XYZ has $1 billion in assets (loans it has made to customers) and $2 billion in liabilities (delinquent loans, interest payments due to customers, debt it may have borrowed, etc.). Bank XYZ could declare bankruptcy and default on its obligations, but instead it receives a big loan from the federal government, which buys Bank XYZ some time to renegotiate its debt to other lenders and get its loan portfolio in better shape.

Why It Matters

Zombie banks are very risky, and often they indicate structural problems that go far beyond the banking industry.


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