1/26/2024 0 Comments Corona meaning anatomyFurthermore, the incentives for some banks to repeatedly extend or alter loan terms so as to avoid writing off their loans (forbearance) can also weigh on bank balance sheets over time, dampening banks’ profitability and capacity for new lending. ![]() It is argued that such firms weigh on economic productivity by trapping resources and crowding out the emergence of new, more productive companies. Since the sovereign debt crisis, there have been concerns about the potential existence of a cohort of failing firms that continue operating on the back of cheap credit and debt forbearance. Policy responses to the pandemic have revived the debate about the presence of unprofitable but still operating firms – often referred to as “zombies” – in the euro area. Tackling the risk of zombification more fundamentally requires the consideration of suggested reforms to insolvency frameworks, and better infrastructure for banks to manage non-performing loans. These firms may face tighter eligibility criteria for schemes and more recognition of credit risk in debt and loan pricing in the future. ![]() Firm-level, loan-level and supervisory data for euro area companies suggest that zombie firms may have temporarily benefited from loan schemes and accommodative credit conditions – but likely only to a modest degree. This has in turn raised questions about an increased risk of zombification in the euro area economy, which could constrain the post-pandemic recovery. Policy measures aimed at supporting corporates and the economy through the coronavirus pandemic may have supported not just otherwise viable firms, but also unprofitable but still operating firms – often referred to as “zombies”. Published as part of the Financial Stability Review, May 2021. Tobias Helmersson, Luca Mingarelli, Benjamin Mosk, Allegra Pietsch, Beatrice Ravanetti, Tamarah Shakir and Jonas Wendelborn ![]() Corporate zombification: post-pandemic risks in the euro area
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