Contagious Zombies

1 Pages Posted: 3 Jun 2021

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

Multiple version iconThere are 2 versions of this paper

Date Written: 2021


Does banks' zombie lending induced by unconventional monetary policy also allow zombie firms to leverage their trade credit borrowing? We first provide evidence suggesting that - even in Germany - particularly weak banks used the European Central Bank's very long-term refinancing operations (VLTROs) to evergreen exposures to zombie firms, which in turn elevated credit risk. Second, we show that zombie firms, which obtained additional funding from banks relying to a larger extent on VLTRO funding, also increased their accounts payable and advance payments received from downstream and upstream firms. And third, zombie firms that obtained further bank funding and such trade credit after the VLTROs had an elevated expected default probability even compared to average zombie 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.

JEL Classification: G1, G20, E58

Suggested Citation

Bittner, Christian and Fecht, Falko and Georg, Co-Pierre, Contagious Zombies (2021). Deutsche Bundesbank Discussion Paper No. 15/2021, 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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