I first encountered the term zombie banks during the financial crisis. It refers to banks whose conditions are so poor that they need government support to survive. Theyre walking, but are they really alive?
So I noticed BI columnist Peter Crabbs use of the term in Statesman reporter Zach Kyles Dec. 2 story about Idahos financially troubled small banks. Much of the story focused on two Boise banks that still hold money from the governments Troubled Asset Relief Program. Congress created TARP in 2008 to help stop recessionary bleeding. Crabb, an economist, said Syringa Bank and Idaho Banking Co. would have died without TARP money.
While other Idaho banks that took TARP money have paid it back, these two have not. Crabb says theyre only semi-viable, blocked by regulators from adding branches or services.
Neither bank returned Kyles phone calls for the story. We expected as much. Bank executives dont want to talk to the press about this. They dont like it when we report about TARP money and the consent orders regulators make them sign.
Banking is one of the most heavily regulated businesses in America. The government will do whatever it takes to stop bank runs, to preserve confidence in lending and lenders. Joseph Schumpeters creative destruction is unwelcome.
Thats why Syringa and Idaho Banking Co. are still in business. Thats why theyre zombies.