Discussion Paper Details

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Title: On Zombie Banks and Recessions after Systemic Banking Crises

Author(s): Timotej Homar and Sweder van Wijnbergen

Publication Date: November 2015

Keyword(s): bank recapitalization, economic recovery, financial crises, intervention, regulatory forbearance and zombie banks

Programme Area(s): Monetary Economics and Fluctuations

Abstract: What costs do zombie banks impose on society? We analyze the effects of government and central bank interventions in 68 systemic banking crises since 1980, of which 28 are part of the recent global financial crisis. Our estimation approach controls for the correlation between intervention measures and the time-invariant component of unobservable crisis severity. We find that timely bank recapitalizations substantially reduce the duration of recessions, underscoring the distortions caused by zombie banks and the costs of regulatory forbearance.

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Bibliographic Reference

Homar, T and van Wijnbergen, S. 2015. 'On Zombie Banks and Recessions after Systemic Banking Crises'. London, Centre for Economic Policy Research.