A zombie bank is a financial institution that has an economic net worth of less than zero but continues to operate because its ability to repay its debts is shored up by implicit or explicit government credit support.
[2][3][4] A zombie bank can continue to operate and even grow as long as creditors remain confident in the relevant government's ability to extract the funds needed to back up its promises from current or future taxpayers.
However, when this ability seems doubtful, zombie institutions face runs by uninsured depositors and margin calls from counterparties in derivatives transactions.
[2][3] In an article published in the March/April 1992 issue of Society entitled, "The Savings and Loan Insurance Mess," Edward Kane expanded on the source of the analogy.
"Although the Savings and Loan (S&L) debacle is extremely complex," Kane wrote, "simple-minded cartoons and horror movies can illustrate how the S&L insurance fund turned into such a mess.
The banks come to resemble empty shells, conduits for public aid but shrinking and unprofitable as businesses — and, to a large extent, that is already the case in Ireland.
"[6][7] In the 1990s, Japan suffered a collapse in real estate and stock market prices that pushed major banks into insolvency.
[10] On July 26, 2012 the ECB’s president Mario Draghi launched the Outright Monetary Transactions (OMT) Program,[11] which led to a significant increase in the value of sovereign bonds issued by European periphery countries.