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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.

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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