Zombie banks

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What are ‘zombie banks’
The term ‘zombie bank’ was first introduced by Edward Kane in 1987 to describe a bank that has a negative net worth but still continues to operate. A negative net worth means that the fair value of assets is lower than the total value of liabilities. Zombie banks usually have large amounts of non-performing assets on their balance sheets making them unprofitable. A loan is considered to be a non-performing asset if no principal payments or interest have been paid for 90 days and is therefore seen to be in jeopardy of default. The fair value of an asset that is considered non-performing is considerably reduced. Zombie banks usually continue to operate until their financial situation is resolved or they are run
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As a result, Japan went into a prolonged period of deflation that lasted for most of the 1990’s. In order to boost demand, the Japanese government took a Keynesian approach and went through 10 fiscal stimulus packages in 1990’s totaling over 100 trillion yen (10). However, this didn’t have the desired effect on demand because of deflation. Consumers were putting-off purchase decisions because prices were falling. The real GDP stagnated and average growth between 1990 and 2001 was only 0.37% (12).
The European debt crisis began in 2009 when rating agency’s downgraded Greek government and bank debt because Greece’s government debt reached 113% of GDP. Furthermore, in 2010 Greece’s budget deficit for 2009 was revised from 3.7% to 12.7% (13). Since then Greece has received multiple bail-outs and the crisis has spread throughout the Eurozone and many countries like Portugal, Spain, Ireland and Italy have been severely affected. The Eurozone crisis is a combination of sovereign debt, productivity, private debt, asset bubble and banking crisis. Contrary to BOJ in 1990’s, the ECB reacted to the crisis by quickly lowering the interest rate to 1% in May 2009 (14). Furthermore, the ECB started intervening with the securities market directly in 2010 with the ’Securities Markets Programme’, purchase programme to buy bank-issued covered bonds (2011)
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