BIS paper studies how weak banks beget zombie firms
Weak banks have a tendency to misallocate capital, authors find
Undercapitalised banks have a tendency to provide too much lending to weak firms and not enough to strong ones, helping create a zombified economy, according to a working paper published on November 9 by the Bank for International Settlements.
Authors Fabiano Schivardi, Enrico Sette and Guido Tabellini take Italy as their case study, noting its deep recession, absence of bank recapitalisations and lack of a ‘bad bank’ make it a particularly useful case study of the detrimental effects of weak
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