Zombie Bank

A “zombie” (as popularized in many horror movies) is someone of the living dead, who walks the earth but doesn’t know that he or she is dead. A “zombie banks” is a bank that is insolvent, but is kept alive through federal assistance.
 
Edward J. Kane authored the paper, “Dangers of Capital Forbearance: The Case of the FSLIC and ‘Zombie’ S&Ls,” for the January 1987 issue of the publication Contemporary Economic Policy. During the savings and loan crisis of the late 1980s, the terms “zombie S&Ls” and “zombie thrifts” were used. Eventually, the term became popularized as “zombie bank.”
 
“Zombie bank” was repopularized in 2008, following the financial crisis and the federal government’s Troubled Asset Relief Program (TARP) aimed at helping failing financial institutions.
     
 
Wiktionary: zombie bank
Etymology
First used in reference to the Asian Financial Crisis of 1997, possibly coined by the economist Edward Kane.
Noun
zombie bank (plural zombie banks)
1.(finance, banking) A bank that is insolvent but is propped up by government intervention
 
Wikipedia: Zombie bank
A zombie bank is a financial institution that has an economic net worth less than zero but 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.
 
Investopedia
What Does Zombie Bank Mean?
A bank or financial institution with negative net worth. Although zombie banks typically have a net worth below zero, they continue to operate as a result of government backings or bailouts that allow these banks to meet debt obligations and avoid bankruptcy. Zombie banks often have a large amount of nonperforming assets on their balance sheets which make future earnings very unpredictable.
 
Word Spy
zombie bank
n. A bank that cannot lend money because its liabilities are greater than its assets, but remains in business thanks to government support.
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Earliest Citation:
First Republic Bank is not alone. It is merely the largest and most immediate example. It is one of the “new breed of zombie banks” that is being kept alive only by regular infusion of taxpayer dollars.
—“Role of Financial Institutions: Hearings Before the Subcommittee on Telecommunications and Finance of the Committee on Energy and Commerce,” United States Government Printing Office, April 13, 1988
     
Wiley Online Library
DANGERS OF CAPITAL FORBEARANCE: THE CASE OF THE FSLIC AND “ZOMBIE” S&Ls
EDWARD J. KANE
Contemporary Economic Policy
Volume 5, Issue 1, pages 77–83, January 1987
Abstract
This paper portrays Federal Savings and Loan Insurance Corporation (FSLIC) forbearance and congressional unwillingness to increase the FSLIC’s human or capital resources to the size necessary to handle developing economic insolvencies as a joint policy crime that has served to bifurcate the savings and loan industry into the living and the living dead. As agents for the taxpayer, Congress and the FSLIC have assumed too much discretion and have chosen to exercise that discretion myopically. An agent has a duty to represent its principal’s economic interests more effectively than this. The FSLIC’s policy touchstone should be to negotiate and enforce the same kind of covenant provisions that a prudent private guarantor would require.
   
16 April 1987, Chicago (IL) Daily Herald, “Big deposit by taxpayers is needed to save thrifts” by Jane Bryant Quinn, sec. 5, pg. 4, col. 2:
Thousands of Americans deliberately do business with zombie S&L’s because they offer some of the highest interest rate in the country on insured certificates of deposit.
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If you’d rather be with a sound S&L, how can you find a good one? Don’t bother readding your institution’s financial statements, zombie S&L’s are allowed to use funny-number accounting to make themselves look healthy when they’re not.
 
11 May 1987, Burlington (IA) Hawk Eye, “Troubled savings & loans in ‘land of the walking dead,’” pg. 8B, col. 1:
WASHINGTON (AP)—The irreverent call them “zombie thrifts” and their homes on the plains of Texas and Oklahoma “the land of the walking dead.”
 
They are savings and loan associations, those friendly little places that make home mortgages. But in this case, many not-so-little thrifts are considered broke by federal regulators because they’ve made too many shaky loans.
 
Google News Archive
18 April 1988, Sydney Morning Herald, “Monsters at the bottom of the garden” by Maximilian Walsh, pg. 13, col. 4:
Anatole Kaletsky of the Financial Times describes the situation this way: “Hundreds of brain dead institutions are being kept alive indefinitely with the FSLIC’s assistance, bidding for Federally-guarnateed deposits. Meanwhile their losses will continue to mount, as their foreclosed properties stay unoccupied and dud mortgages remain unpaid. Unless a buyer emerges for First RepublicBank, a new breed of zombie bank will be joining them to roam the financial markets.”
   
Google Books
The S & L Insurance Mess:
How did it happen?
By Edward J. Kane
Washington, DC: Urban Institute Press ; Lanham, MD : Distributed by University Press of America
1989
Pg. 1:
Chapter One
ZOMBIE THRIFTS AND FSLIC:
A FEDERAL PONZI SCHEME?
 
Google News Archive
14 February 1989, Beaver County Times (PA), “Sagging thrifts caught in market’s double bind” by Timothy Taylor (Knight Ridder Newspapers), pg. D2, col. 6:
Savings and loans that fall into this destructive cycle are called “zombie thrifts” by Edward Kane of Ohio State University.
   
Google Books

The collapse of the savings and loan industry
By Martin Mayer
New York, NY: C. Scribner’s Sons; Toronto: Collier Macmillan Canada; New York, NY: Maxwell Macmillan International
1990
Pp. 124-125:
If he couldn’t stop the spread of what Edward Kane of Ohio State brightly called “zombie thrifts,” he at least slowed their growth.
 
Google News Archive
13 June 1991, Nashua (NH) Telegraph, “Ray of hope seen for New Hampshire Banks” by Frank Byrt, pg. 24, col. 3:
Donald Kauth writes in his May report for First Albany Corp., an Albany, N.Y.-based investment firm, that based on the first quarter performances of 10 New Hampshire and Maine bank holding companies, the rate of deterioration appears to be moderating.
 
“But the results provide little support for a bottom in New Hampshire’s economy,” he said.
 
The 10 banks do not include New Hampshire’s most troubled institutions: Amoskeag Bank Shares In., BankEast Corp., Dartmouth Bancorp. Inc., New Hampshire Savings Bank Corp. and Numerica Fianncial Corp., which he referred to as “zombie” banks.
 
MarketWatch
Feb. 24, 2009, 4:05 p.m. EST
There are no zombie banks, Bernanke says
Nationalization unnecessary, because Fed can force needed changes
By Greg Robb, MarketWatch
WASHINGTON (MarketWatch) - Despite operating in a regulatory grey zone, the nation’s largest banks are not “zombies,” Federal Reserve Chairman Ben Bernanke said Tuesday.
 
The term “zombie” has become popular to describe a bank that exists but is only alive because of government support. The term was first used to describe Japanese banks during the “lost decade’ in the 1990s.
 
Bernanke said that was not an “accurate description” for top U.S. banks.
 
“They all have substantial franchise value. They are all lending—all active. All have substantial international franchises,” he said.
 
New York (NY) Times
On Language
Zombie Banks
By WILLIAM SAFIRE
Published: May 14, 2009
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To current, rampant use: zombie, in reference to a bank with negative assets that survives thanks to government support, reports the O.E.D. lexicographer Jesse Sheidlower, was apparently coined by Edward J. Kane in a 1987 article about the acts of the Federal Savings and Loan Insurance Corporation in the journal Contemporary Policy Issues titled “Dangers of Capital Forbearance: The Case of the F.S.L.I.C. and ‘Zombie’ S.&L.’s.” The qualifier “apparently” is used because quotation marks in a citation often suggest earlier use, and zombie often refers to Japan’s decision in the ’80s to shore up its troubled banks in a way that led to its “lost decade” of stagflation. In 2004, a review in The Japan Times by Jeff Kingston of a book by Gillian Tett noted that in the 1990s “Japan’s zombie companies transformed their lenders into zombie banks, all kept on government life support.”
 
Time magazine—NewsFeed
‘BFF,’ ‘Zombie Bank’: Actual New Entries in the Dictionary
By: Megan Friedman
September 16, 2010
You know you’re old when text-speak gets incorporated into the dictionary.
The New Oxford American Dictionary has released its annual list of added words, and it’s a doozy.
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zombie bank n. informal a financial institution that is insolvent but that continues to operate through government support.