Zombie Banks: How Broken Banks and Debtor Nations Are Crippling the Global Economy
“The title is worthy of a B movie, but it's also apt. Bloomberg News reporter Yalman Onaran, supported by former U.S. Federal Deposit Insurance Corp. chief Sheila Bair - who provides a foreword and numerous interviews - urge that insolvent banks both small and too big to fail be allowed to do precisely that. Reading bank balance sheets is not everyone's idea of a good time. But Mr. Onaran, with support from Ms. Bair, does the chore and explains what it means. Mr. Onaran shows that the process of rescuing dead and dying banks is increasing systemic risk in the global banking system. And that is really more frightening than scream flicks from Tinseltown.” -- Financial Post
“Yalman Onaran knows of putrid financial institutions, having written about them in his native Turkey so successfully he brought down a few in Istanbul in the late '90's.” -- Huffington Post
“Do We Love Zombie Banks? The new book by Yalman Onaran of Bloomberg News, Zombie Banks: How Broken Banks and Debtor Nations Are Crippling the Global Economy, is a well-organized and clearly written discussion of the use of leverage to provide growth in many different economies. Onaran has carefully researched the zombie phenomenon and makes some important points in this concise volume about both public policy and the concerns of investors. One of the more interesting early threads in the book is the juxtaposition of the experience of the US in the S&L crisis and Japan in the 1980s and 1990s with the US today. Zombie Banks is a good review of the latest thinking about the ebb and flow of the political economy.” -- R. Christopher Whalen, author of Inflated
Zombie banking has become standard operating procedure for big debtor nations. They prop up failing institutions, print money, and avoid financial corrections. But in an attempt to prolong the inevitable, bigger problems are created. The approach used now has not, and will not, work. This timely book reveals why. Zombie Banks tells the story of how debtor nations and failing institutions are damaging the long-term prospects of the global economy.
Author Yalman Onaran, a veteran Bloomberg News reporter and financial banking sector expert, examines exactly what a zombie bank is and why they are kept alive. He also discusses how they hurt economic recovery and what needs to be done in order to restore stability. Along the way, Onaran takes an honest look at how we arrived at this point and details the harsh realities that must be faced, and the serious steps that must be taken, in order to get things headed in the right direction.
- Puts insolvent banks and debtor nations in the spotlight and examines how they are crippling the global economy
- On the record sources include Paul Volcker, Joseph Stiglitz, Sheila Bair, and many more bank executives, regulators, politicians, and policymakers in the United States and abroad
- Takes the complexity of the current situation and translates it in a way that makes it understandable
While the short-term measures taken to stave off depression and rejuvenate economic growth may offer hope, they are unsustainable over the long term. Get a better look at what really lies ahead, and what it will take to improve our economic situation, with this book.
Cast of Characters xv
Chapter 1 Zombies in Our Midst 1
Chapter 2 Lessons Not Learned 15
Chapter 3 Europe’s Sovereign Blues 23
Chapter 4 Germany’s Untouchable Zombies 35
Chapter 5 Ireland’s Zombies Bring the House Down 51
Chapter 6 The Reincarnation of Iceland’s Banks 67
Chapter 7 U.S. Zombies on IV Drip 81
Chapter 8 The Fight to Rein in the Banks 97
Chapter 9 To Foreclose or Not to Foreclose? 113
Chapter 10 Bigger Banks, More Derivatives, Higher Risk 125
Chapter 11 Killing Zombies and Preventing Their Return 137
About the Author 175
How Broken Banks and Debtor Nations Are Crippling the Global Economy
By Yalman Onaran
Foreword by Sheila Bair
What are zombie banks? Simply stated, they are insolvent financial institutions whose equity capital has been wiped out so that the value of their obligations is greater than their assets. Instead of going bankrupt and “dying,” these banks are allowed to stay “alive” through capital infusions from the government, loans from central banks, or put another way, bailouts. Sound familiar?
Why has the banking industry gone from such respectable “White shoe” roots to being the most demonized field around? According to veteran Bloomberg News reporter and financial banking sector expert, Yalman Onaran, zombie banking has become standard operating procedure for big debtor nations. He describes this concept in detail in his new book, ZOMBIE BANKS: How Broken Banks and Debtor Nations are Crippling the Global Economy (Wiley/Bloomberg Press; November 2011).
Three years after the global financial crisis, zombie banks are still around. These institutions continue to operate thanks to the help of national governments that prop them up, print more money, and allow them to avoid financial punishment. Presenting an in-depth look at the issues surrounding this financial phenomenon, ZOMBIE BANKS tackles the terror head on, demonstrating how this practice has failed in the past, and why it's destined to do so again.
Looking at examples from around the world, it proves that the vast sums invested in keeping these banks afloat has failed to save the United States, the EU, or Japan from their current economic misery. Only by closing the books on these zombies can any country hope to start rebuilding. Onaran brings together exclusive and extensive commentary from bank executives, regulators, politicians, and policymakers from around the world, including Nobel economics prize winner Joseph Stiglitz and for FDIC Chairman Sheila Bair to show how the practice of zombie banks is detrimental to all nations.
For example, the U.S. government almost went the way of Ireland when it came close to issuing a blanket guarantee for its banks' liabilities. Timoth Geithner, who was head of the New York Fed at the time, was the biggest proponent of it while Sheila Bair, who served as chairman of Federal Deposit Insurance Corp. until mid-2011, fought against it. While Bair won that debate, the U.S. still propped up many of its failing banks even after letting Lehman Brothers go down. The capital injected into Citigroup and Bank of America at the height of the crisis exceeded their market values. Still, instead of seizing those failed lenders, cleaning them up and selling off their good assets, the government let them live as zombies.
Onaran looks at these and other complex financial machinations which have led the global economy to this point and details the harsh realities that must be faced, and the serious steps that must be taken, in order to get things headed in the right direction. ZOMBIE BANKS outlines the essential steps that must be taken to get rid of these institutions once and for all. Nowadays, bankers boast of being in the business of risk management. That has become a catchword hiding risk in derivatives or off-balance sheet vehicles, exasperating the domino effects of a crisis somewhere in the rest of the world. Risk can shift and spread but it never disappears. We'll learn that lesson once again during the next blowup.
Onaran points out that there is also a strong need for better rules to prevent financial institutions from getting to that point. The best deterrent is a strong capital buffer. The safe ratio is around 20 percent, more than twice what recent international talks by regulators came up with. Even if they’re not zombies right now, the biggest global banks are in danger of becoming zombies in the next crisis or the one after that because they’re too big to fail and too big to manage. Onaran has written an accessible “must-read” for the majority of us trying to understand the complex financial issues ruling the world right now.
About the Author
Yalman Onaran is a veteran financial reporter at Bloomberg News and has studied bank insolvency for decades. One of the first reporters to break the news of the collapse of Lehman Brothers and Bear Stearns, he also opened the Istanbul bureau of Bloomberg News and exposed thirteen insolvent Turkish banks which the government was allowing to continue to operate. Onaran's work has appeared in the New York Times, Washington Post, Chicago Tribune, Bloomberg, Businessweek, Frankfurter Allgemeine Zeitung, and numerous other news outlets around the world.
How Broken Banks and Debtor Nations Are Crippling the Global Economy
By Yalman Onoran
Wiley/Bloomberg Press; November 2011
Hardcover ISBN: 978-1-1180-9452-5
Also available in e-book formats
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