Fed Chair: No Night of Living Dead Banks
They won’t stay dead!
Members of the U.S. Senate grilled Federal Reserve Chairman Ben Bernanke on Tuesday on whether the next gruesome episode in the U.S. economic horror show could include an appearance of “zombie” banks.
During Japan’s economic stagnation in the 1990s, the government propped up failing banks and firms that came to be known as zombies. The failure to let such institutions expire prolonged Japan’s agony, many analysts believe.
Now that the U.S. government is struggling to keep the banking system alive, Senator Bob Corker worried aloud that the government is propping up banks that deserve to die.
“It seems to me that — that this has been creating this sort of dead man walking sort of zombie-like banking scenario,” Corker said at a hearing with Bernanke. “It seems to me that what you have explained is a creeping — a creeping nationalism of our banks. I mean in essence, many of them don’t have appropriate capital.”
Banks which the government determines don’t hold adequate capital will receive public funding to meet that capital requirement just to keep them going, he argued.
Bernanke sought to calm fears that government efforts to resuscitate the banking system would create ghouls of the sort featured in the 1968 horror film, “Night of the Living Dead.” In that movie, which was shot in rural Pennsylvania, recently dead people are mysteriously reanimated and go on a macabre rampage.
“I think zombie was not an appropriate description of any of the banks,” the Fed chairman said. “I think they all have substantial franchise value, they are all lending, they’re all active, they have substantial international franchise.”
Even as the government puts capital into struggling banks to help them lend, it will pressure them to restore themselves to profitability and draw private capital, he said.
Photo credit: Reuters/Jonathan Ernst (Fed Chairman Bernanke at Senate banking hearing)