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RSS Finance & Markets Monitor

The Zombies are Coming... Again

Christian Menegatti and Elisa Parisi-Capone | Nov 9, 2009

Editor's Note: The following is excerpted from RGE premium content. The full analysis, "The Zombies are Coming... Again," is available to paid clients.

Which banks are “zombie banks?” How many of them are there, and what kind of shape are they in?

A zombie bank is a financial business that can no longer function without governmental guarantees of some kind. The term was first coined in the late 1980s to describe systemic risks associated with keeping too many non-viable banks on their feet through government support.

The term was revived earlier this year when the U.S. government directly subsidized America’s four biggest banks: Bank of America, Citigroup, JP Morgan Chase and Wachovia. But deciding which bank is and which bank isn’t reliant on government support is not so straightforward. As the Obama administration’s chief economist Lawrence Summers put it recently, “There is no financial institution that exists today that is not the direct or indirect beneficiary of trillions of dollars of taxpayer support for the financial system.”

How then to assess the health of the financial counterparty that is bidding for your business?  

 



Comments
Uh oh... zombie banks right here on American soil. I hope this doesn't mean the beginning of an American Lost Decade. Checkpoints to see if the U.S. will become a Japan II:

1) Are U.S. regulators allowing banks to hide their bad assets?
2) Are U.S. banks evergreening loans to insolvent borrowers?
3) Are there conflicts of interest in the upper echelons of government?
4) Will banks pay back all support they have received from taxpayers?
5) Will banks do anything with their government support other than cover their losses?
6) Will any taxes go towards boosting consumption in this consumer-driven economy?
7) Has the U.S. chosen to ignore domestic demand and channel private savings towards the export sector and favorite industries that lobby heavily?
Reply to this comment By mikka on 2009-11-09 15:23:05

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