The Zombies are Coming... Again
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?
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