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08/27/2012

Podcast: Why Zombie Banks Remain Undead


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Author Series Podcast

Zombie Banks author Yalman Onaran spoke with NYSSA about the aftermath of the 2008 financial crisis and the barriers blocking the road to recovery. Onaran's book asserts the inconvenient, but rational, view that recovery efforts are actually postponing the problem rather than addressing it—creating "zombie banks." Zombie banks are banks that should have died, but are being artificially preserved by government capital.

HERE ARE SOME INSIGHTS:

  • Regulators have allowed banks to continue without recognizing their true losses.
  • Banks cannot raise capital because investors and debtors do not trust their loss numbers.
  • If the government ever lets the banks know they will let them fail, borrowing prices would skyrocket and the banks would no longer be able to survive.
  • The term "zombie banks" originated in the 1980's with savings and loans, but became popular in the 90's with the burst of Japan's real estate bubble.
  • Historically, when banks were preserved 10 years beyond a crash, the cost to the taxpayer has been 2-3 times more than if they had been allowed to crash in the beginning.

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