4 ms·
Real banks have other assets to cover their liabilities. Sure some of these assets are not liquid. Banks cannot ask people to pay off their mortgage instantaneo
by BenoitEssiambre 8y ago
Real banks have other assets to cover their liabilities. Sure some of these assets are not liquid. Banks cannot ask people to pay off their mortgage instantaneously so if too many people try to redeem deposits all at the same time, the bank might have to ask some people to wait. But the banks always have enough assets so that in the longer term they can pay everyone.
Plus in times of crises the central bank might step in and allow commercial banks to swap their illiquid assets for cash thus providing the needed liquidity.
- jerguismi 7y ago> Sure some of these assets are not liquid. Most of the banks assets are not liquid, such as the loans they have lent out. Banks quite often have problems that they give credit out too easily, which leads to the situation where their assets aren't worth much. They often also give loans to the stakeholders of the bank which makes it a bit sketchy.
- perl4ever 7y agoWell, banks can become insolvent, like any business can fail. That doesn't mean it's their normal operating mode.