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A run on a bank can make it insolvent? I thought that insolvency was when they don't have the assets to cover their liabilities. My understanding of a bank ru
by perl4ever 5y ago
A run on a bank can make it insolvent?
I thought that insolvency was when they don't have the assets to cover their liabilities.
My understanding of a bank run is it happens when a bank is solvent, but doesn't have enough in reserves - liquid, short term assets.
But if they simply don't have at least 100% of their liabilities in assets, then they are bust because they can never pay people back barring a miracle.
- marvin 5y ago> But if they simply don't have at least 100% of their liabilities in assets, then they are bust. Only when we find out!
- Closi 5y agoWell usually banks have huge audit requirements and are covered in regulation to avoid this happening (after learning what happens when you have entirely unregulated financial institutions)
- deleted 5y ago[deleted]
- stevage 5y agoInsolvent literally means liabilities exceed assets. There are various ways a company can trade while insolvent, including being a Ponzi scheme.