Definition of zombie bank

A bank/ company that is insolvent but continues to operate until its fate is resolved by closure or merger. [1]

Example
Beginning in 1990, Japan suffered a collapse in real estate and stock market prices that pushed major banks into insolvency. Rather than follow America's tough recommendation - and close or recapitalise these banks - Japan kept banks marginally functional through explicit or implicit guarantees and piecemeal government bail-outs. The resulting "zombie banks" - neither alive nor dead - could not support economic growth.

A period of weak economic performance called Japan's "lost decade" resulted. [2]

Scores of companies were cast into an “undead” state – in the sense of being too weak to flourish, but too complex and costly for their lenders to shut down. 

Hence they remained half-alive, poisoning the corporate world by silently spreading a sense of stagnation and fear.  [3]

During the lost decade, this was when property values fell by as much as 80 per cent and economic growth slid to the bottom of the G7 league as the country moved in and out of recession. Prices in general began to fall, heightening the debt burden of companies. Deflation stalked the land, with zombie companies kept alive by equally insolvent banks. [4]

Japan’s experience in the past two decades, in particular, make clear that a banking system populated by zombie banks is a major threat to recovery; banking systems remain dysfunctional until losses are fully recognised and disclosed; and procrastination increases the ultimate cost to the taxpayer. [5]

View
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