4 ms·

More like fractional reserve banking.

• Scoundreller 7y ago
  You can be solvent (assets = liabilities) with fractional cash reserves. You can also be insolvent (assets << liabilities), in which you must be fractional too.
  • jerguismi 7y ago
    Usually by insolvency is meant that the bank doesn't have enough liquid, hard assets to cover up the withdrawals from the bank. Bank can have varying assets such as bonds that it has lent out, but if the bank has lent out a lot of money to some people who can't pay the loans or other banks are unwilling to buy, it can be insolvent even if on paper it has "assets".
    • Scoundreller 7y ago
      It looks like “insolvency” is ambiguous, and we should differentiate between cash flow vs balance sheet insolvency.