As a result, some European banks remained significantly undercapitalized from an economic standpoint even post-OMT. In joint work with Tim Eisert, Christian Eufinger and Christian Hirsch (Acharya et al, 2016), I have confirmed that zombie lending is indeed the likely explanation for why the OMT programme did not fully translate into economic growth.
Our study shows that banks that benefited more from the announcement but remained nevertheless weakly capitalized, extended loans to existing lowquality borrowers at interest rates that were below the rates paid by the most creditworthy European borrowers (high-quality public borrowers in non-GIIPS European countries, e.g., Germany), a strong indication of the zombie lending behaviour.