Zombie Bank

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DEFINITION of 'Zombie Bank'

A bank or financial institution with negative net worth. Although zombie banks typically have a net worth below zero, they continue to operate as a result of government backings or bailouts that allow these banks to meet debt obligations and avoid bankruptcy. Zombie banks often have a large amount of nonperforming assets on their balance sheets, which make future earnings very unpredictable.

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BREAKING DOWN 'Zombie Bank'

The term "zombie bank" was first coined in 1987 to explain the savings and loan crisis that led to a large number of financial institutions declaring bankruptcy. Quite often, when a bank is deemed a zombie bank, customers will flood the institution in a bank run, only worsening the situation. This was seen during the financial crisis of 2008-2009, in which a large number of national and regional banks became insolvent and forced the U.S. government to issue a bailout package to keep the financial sector afloat.

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