Contagious Zombies

71 Pages Posted: 19 Apr 2021 Last revised: 19 Jan 2023

See all articles by Christian Bittner

Christian Bittner

Deutsche Bundesbank; Goethe University Frankfurt

Falko Fecht

Deutsche Bundesbank; Frankfurt School of Finance & Management

Co-Pierre Georg

EDHEC Business School

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Date Written: January 19, 2023


We show that particularly weak German banks used the European Central Bank’s very long-term refinancing operations (VLTROs) to evergreen exposures to zombie firms. Zombie firms that obtain more credit after the introduction of the VLTROs had a substantially elevated subsequent default probability. This suggests that either positive private information did not materialize or the decision to engage in zombie lending was not driven by any such private information. At the time of loan extension, banks that resort to the VLTRO report lower borrower-specific probabilities of default, reduce loan loss provisions and lower their credit standards relative to banks who lend to the same firm but have not resorted to the VLTRO. Zombie firms, which obtained additional funding from banks relying to a larger extent on VLTRO funding, in turn increase their accounts payable and advance payments received from downstream and upstream firms. This suggests that suppliers relying on banks’ lending decisions as a signal about borrowers’ credit quality might be misled by banks’ zombie lending to extend more trade credit to zombie firms exposing suppliers to elevated contagion risk.

Keywords: unconventional monetary policy, zombie lending, trade credit

JEL Classification: G1, G20, E58

Suggested Citation

Bittner, Christian and Fecht, Falko and Georg, Co-Pierre, Contagious Zombies (January 19, 2023). Available at SSRN: or

Christian Bittner (Contact Author)

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431

Goethe University Frankfurt ( email )

House of Finance
Theodor-W.-Adorno-Platz 3
Frankfurt, Hesse 60629

Falko Fecht

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
+4969956632312 (Phone)

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Frankfurt School of Finance & Management ( email )

Adickesallee 32-34
Frankfurt am Main, 60322

Co-Pierre Georg

EDHEC Business School ( email )

58 rue du Port
Lille, 59046

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