3 ms·
You're confusing different definitions of the "money". In theory, they retain enough _assets_ to pay off their creditors, but not enough _cash_. In the event o
by tvladeck 10y ago
You're confusing different definitions of the "money".
In theory, they retain enough _assets_ to pay off their creditors, but not enough _cash_. In the event of a bank run they'd have to be handing over their stake in mortgages and other debt that hasn't yet been paid off. But of course these are illiquid, and the creditors wouldn't accept that in general.
In the vocabulary of money supply, you're confusing M0 and M1.
- gozur88 10y agoThe M0/M1 distinction is irrelevant - banks buy cash from and sell cash to the central bank all the time based on how much they need. Banks borrow against assets all the time, and during a run that's what they'd do. "Illiquid" is just a word for little people as long as the bank is solvent.