Corporate Insolvency Rules and Zombie Lending

Bank lending to less productive firms at subsidized rates has long been recognized as an important mechanism that can help banks in the short run, but deepens and prolongs economic crises. Explanations of such “zombie lending” are underpinned by misaligned bank incentives. Bo Becker proposes an additional driver of zombie lending: the inefficient resolution of insolvency.

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Image courtesy of interviewee. April 6, 2022

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