n. (context finance banking English) A bank that is insolvent but is prop up by government intervention
A zombie bank is a financial institution that has an economic net worth less than zero but continues to operate because its ability to repay its debts is shored up by implicit or explicit government credit support. The term was first used by Edward Kane in 1987 to explain the dangers of tolerating a large number of insolvent savings and loan associations and applied to the emerging Japanese crisis in 1993. A zombie can continue to operate and even to 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. But when this ability seems doubtful, zombie institutions face runs by uninsured depositors and margin calls from counterparties in derivatives transactions.