What are ‘zombie banks’?

Zombie banks are sapping the life out of the global economy. Tim Bennett explains what they are, why they are allowed to exist and why they must be allowed to die.

Having trouble viewing this video? Click here for a version optimised for slower connections.

• See all MoneyWeek videos here.

• To download the videos to your mobile device via iTunes, click here.

• Get all of our latest video tutorials sent straight to your inbox every week - sign up FREE to MoneyWeek Videos here.

By signing up to any of our free e-letters you consent to receive occasional promotions from us or other companies. We will never give, sell or rent your email address to any other companies. You can unsubscribe at any time by clicking the link at the bottom of each email, or by calling 0207 633 3780. Please see our privacy policy.

Video tutorial - why profit margins matter

Why profit margins are really useful

In this video, Ed Bowsher explains how to calculate a company’s profit margin, why it is the best way to evaluate profitability, and how you can use it when analysing a company.

Don't miss our next video....

Money Morning - FREE daily investment email

'Money Morning' is our FREE daily investment email. In just a couple of minutes' enjoyable reading each morning, John Stepek (our editor) and regular guest contributors explain to you:

  • What's been going on in the markets
  • How the day's economic and political developments will affect your wealth
  • The latest investment opportunities, and how you can profit

To sign-up enter your email address below...

A note about our free emails, advertising, and how to unsubscribe.

Because these emails are completely free, we do have to fund them with advertising. Occasionally we will send you separate promotional emails, which will contain advertisements from us or from other companies. By signing up to our free emails, you are consenting to receive these promotions. However we will never give, sell or rent your email address to any other companies. And if you want to stop receiving our free emails at any time, you can immediately unsubscribe by clicking on the link at the top of each email, or by calling us on 0207 633 3780. For more information, please see our Privacy policy.

  • Aduffawol

    Tim I enjoyed your video, but you fail to acknowledge the fact the tactic being used could potentially pull zombie banks out of insolvency as low Interest rates and QE is allowing the banks to become profitable thus enabling them to write off losses in the past with profits from the future and gives time for assets to recover.ALso tim to say this is the sole reason behind growth is false there are a few other big Banks that where not propped up which in your theory should be generating growth but we are in recession.

  • Aduffawol

    Also there is no longer any point in saying what the government should have done. When the government bailed out RBS there was a reasons they didn’t fully nationalise it complete. In 2008 RBS had about 2 trillion on its books if the government nationalised them they could of bein exposed to all there liabilities which the markets may have included in calculating British sovereign debt. Now you can imagine what would of happened to bond yields. Today that is still the case although RBS’s book has shrunk to around 1.2 trillion it is still too high of an. Exposure to risk. In my opinion inflation is the only alternative evil that will fix this situation.

  • Chester

    Hard to promote inflation in a deflationary contraction that needs to run it’s course, and extinguish the bad debt build-up. The QE lesson of the last 4 years is that the BOE and Fed are powerless to stop it. All they can do is delay and make the resultant bust worse

  • Aduffawol

    True to a point chester, but the problem with deflation is it will increase the debt burden in real terms not just for our goverment but for the everyday borrower.I do feel we have no alternative but to inflate the debt away and it’s the working class that will pay the price as the wealthy pour wealth into forgein currencies, gold and other asset classes. Inflation will happen, it’s the balanced opposite reaction to money printing.we could could see it through imported inflation as the currency eventually falls.( Europe could slow this process) but it will
    And must Happen. Now I don’t want it to happen yet as the economy couldn’t handle high interest rates just yet( housing market would collapse along with banks.

  • Obe Ladi

    I am always puzzled by these ‘bad loans’ …are all of these unsecured loans? If they are how did people/organisations manage to get billions of pounds worth of unsecured loans? My experience has been that unsecured loans were almost impossible to get… hence my confusion.

  • Tim

    Obe Ladi – many of the loans were secured on property which has now plunged in value. Here’s a scenario – you borrow 6x your salary of say £20,000 (possible pre-crash from Northern Rock) and buy a property worth £120,000 (a 100% mortgage). The property then falls by £20,000 in value but you still owe the full amount. That’s secured. But because you are a mortgage holder you also borrowed £10,000 on credit cards and personal loans. Now you are £30,000 in total “underwater”. Very easily done in the boom years. And my numbers are conservative compared to what some folk were borrowing.

  • Obe Ladi

    Tim, thanks for your comment. Yes I understand the mechanics of the security of the loans but what happens when the banks write off these loans? Presumably the securities not called in? You read about ‘Bad Banks’ of dodgy loans… surely any loan is as good as the security behind it. Did they get dodgy securities as well at the time? And why write the loans off if they are collectible, even if it takes some time?

  • Mousey

    Hi,i am upset with the banking system completly,i have quite a lot of money in the bank aquired through an inheritance from my father.I have a property where i was born and my family have lived for many generations in the Channel Islands.My problem is, do i have trust in the banks or do i buy another property.I regualy have to go to different banks to reinvest the funds and always ask if their bank is safe,the answer is always the same ,We are fine,oh yes we have no preblens now. I am now thinking should i now buy another prperty or put it under the bed.Hey Ho if you have money you have problems and if you have no money you still have problems.

  • Ted

    @ Aduffawol
    The title of the video is “what is a zombie bank.”
    These are videos giving a gradual introduction into various concepts which I think Tim does extremely well.
    Once these concepts are understood, then I’m sure Tim has in the past, or will in the future, introduce more complex ideas into the mix. But there’s no point running before you can walk by bombarding people with loads of facts and theories right at the start before giving people the correct framework to understand all this.

    He’s giving people the basic foundations, no more, no less. If it’s too simple for you to watch then I’d suggest that these videos aren’t actually aimed at you in the first place.

  • Tim

    Ted – on that note, recommendations for future topics always welcome. As you say the first video on each topic is intended as an introduction/taster if there’s enough interest in more further down the line.

  • Aduffawol

    Guys I wasn’t criticising tim. I was arguing against his theory on why banks must be allow to die. I was creating debate and dialogue which Is the purpose of leaving comments . I appreciate all information and articles on this website, if I didn’t I would not be a member.

  • Tom O’Neill

    Brilliant exposé – and understandable by anyone.
    As long as the government is obsessed with ‘supporting the housing market’ it is open to outrageous blackmail by the banks – and by those who greedily and foolishly overborrowed in what any idiot could see was a dangerous housing bubble (2006-08). And the Swedish model is so obviously what we should be copying, absolutely agree.
    We need a return to personal responsibility for debts personally incurred. Reversing the easing of bankruptcy conditions would be a start.

  • Colin Selig-Smith

    1. Aduffawol

    You just described Japan. Welfare for bankers. 20 years later… Still zombies roaming the Japanese financial sector.

    The problem is, the incompetent management are left in charge. They don’t get any more competent, they just pat themselves on the back for persuading the suckers (sorry, government) to bail them out and then go on to give themselves bigger bonuses when they should be out on the streets begging for change.

  • Lupulco

    Good article, i wander thru them, always finding out things i did not know, plus the comments are good also, some better then others.

    I suppose Banks may have been leaned on to provide mortgages that were iffy, just allow people to buy property.

    This led to greed on the salesmen selling mortgages and people using houses as piggy banks, rather then saving? One could say that this as led to the property bubble we have now and the lack of first time buyers.

    Second to this as been the trashing of peoples savings who did not want to invest in speculative investing, especially when approaching retirement. These people are now facing the double whammy of low %rates and high inflation used as a way of making banks/governments solvent again.

    What would be interesting is your opinion of what a rise in %rates to historical norms would do?