what is a zombie bank 
a zombie bank is an insolvent financial institution that is able to continue operating thanks to explicit or implicit support from the government understanding zombie bankszombie banks have large amounts of nonperforming assets on their balance sheets and are kept afloat to prevent panic from spreading to healthier banks normally a bank running at a significant loss will eventually be forced into bankruptcy at which point its assets will be sold off to pay down as many debts as possible that is unless they are bailed out by governments zombie banks are creatures of financial repression when loans go bad a capital flight takes hold and the value of assets plummet central banks sometimes decide to keep debt burdened banks corporations and households on life support instead of allowing nature to take its course and creative destruction to do its work previously banks were left to die government intervention surfaced later on when it became clear that struggling financial institutions incite panic policymakers wanted to avoid healthier ones getting caught in the crossfire and decided to take action since then debates have raged about when is the right time to pull the plug governments might arrange for the creation of a bad bank to purchase bad loans and illiquid assets of a failing institution the term zombie bank was first coined by edward kane of boston college in 1987 in reference to the savings and loan crisis s l commercial mortgage losses threatened to wipe out savings and loan institutions rather than let them go under policymakers allowed many of them to stay in business 1 they hoped that keeping them afloat would pay off should the market rebound eventually policymakers gave up on this strategy when the losses of the zombies had tripled shutting down struggling banks can incite widespread panic however evidence shows that enabling them to continue operating comes with several drawbacks as well restoring banks back to health can cost hundreds of billions of dollars and weigh on economic growth by not liquidating zombie banks investors capital is trapped instead of being put to more productive use plus rather than strengthening healthy companies and supporting economic recovery zombie banks prop up rotting corporations by distorting market mechanisms the resulting misallocation of resources weakens the whole financial system zombie bank examples