Friday, June 08, 2012

Beware of Zombie Banks

According to Yalman Onaran (2011) in Zombie Banks: How Broken Banks and Debtor Nations Are Crippling the Global Economy:
Zombie banks refers to an insolvent financial institution whose equity capital has been wiped out so that the value of its obligations is greater than its assets. The level of capital is crucial for banks, more so than for non-financial companies, because the event of bankruptcy, a bank's assets lose value faster and to a bigger extent. Thus, when a bank's equity declines significantly due to losses, its creditors panic and head for the door (deposits are insured in most Western economies, so depositors don't run away as easily).
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Banking stakeholders will find the contents of this book disturbing...

Source: Onaran, Y (2011), Zombie Banks: How Broken Banks and Debtor Nations Are Crippling the Global Economy, Bloomberg Press.

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