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Reproduced from BofA Global Research; Note: Banks included are Federal Reserve, European Central Bank, Bank of Japan, Bank of England, Bank of Canada and Reserve Bank of Australia; Chart: Axios Visuals

Fears are mounting that a massive growth in debt and the current policy environment — described as "monetary policymaking on steroids," by Michael Arone, chief investment strategist for State Street Global Advisors, earlier this year — could be producing a new global wave of "zombie firms," a new G30 report by top economists and central bankers warns.

What it means: "The term 'zombie firms' was coined to refer to firms propped up by Japanese banks during Japan’s so-called 'Lost Decade,' following the collapse in 2001 of the Japanese asset price bubble," according to the report.

  • "Multiple studies suggest these firms contributed to Japan’s economic stagnation by distorting market competition and depressing profits and investments in healthy firms."

Why it matters: "[O]verburdening of the corporate sector with debt in the response to Covid-19 could create a new wave of zombie firms, with harmful consequences for the prospects of economic recovery."

  • "As interest rates stay low and governments continue to support struggling firms, the risk of zombie firms increases."

Between the lines: We may already be seeing this happen. The G30 report comes on the heels of the BIS' latest quarterly review, which noted that a "divergence in the assessments of corporate vulnerabilities may be emerging."

  • The review pointed out that while equity prices were reaching record highs and credit spreads had compressed, banks have significantly tightened their standards and cut back lending.
  • Investors' search for yield and central banks' gargantuan easing programs "appeared to underpin these contrasting developments."

The bottom line: The G30 report quoted Piyush Gupta, CEO of Singapore-based DBS bank, who expects the issue of zombie firms to be a particular challenge among small and midsized businesses. He predicts a wave of defaults that will add pressure to the financial sector.

  • Policymakers will soon need to ask themselves a serious question, he says: “Do you keep...using public finances to support companies or do you let creative destruction happen?"

Go deeper

Dion Rabouin, author of Markets
Jan 13, 2021 - Economy & Business

Democrats are looking to overhaul banking

Illustration: Aïda Amer/Axios

Now in control of Congress, Democrats are looking to give the U.S. financial system a progressive overhaul, incoming Senate Banking Chairman Sherrod Brown said Friday. It will be a tall task.

What we're hearing: "This committee in the past has been about Wall Street," Brown told reporters. "As chair I’m going to make it about workers and their families and what matters to their lives."

Updated 6 hours ago - Politics & Policy

Coronavirus dashboard

Illustration: Eniola Odetunde/Axios

  1. Health: Most vulnerable Americans aren't getting enough vaccine information — Fauci says Trump administration's lack of facts on COVID "very likely" cost lives.
  2. Politics: Biden unveils "wartime" COVID strategyBiden's COVID-19 bubble.
  3. Vaccine: Florida requiring proof of residency to get vaccine — CDC extends interval between vaccine doses for exceptional cases.
  4. World: Hong Kong to put tens of thousands on lockdown as cases surge.
  5. Sports: 2021 Tokyo Olympics hang in the balance.
  6. 🎧 Podcast: Carbon Health's CEO on unsticking the vaccine bottleneck.

Trump impeachment trial to start week of Feb. 8, Schumer says

Senate Majority Leader Chuck Schumer. Photo: The Washington Post via Getty

The Senate will begin former President Trump's impeachment trial the week of Feb. 8, Majority Leader Chuck Schumer announced Friday on the Senate floor.

The state of play: Schumer announced the schedule after reaching an agreement with Republicans. The House will transmit the article of impeachment against the former president late Monday.