> I think the understanding issue is that all banks are basically insolvent by design Banks are not balance sheet insolvent at all. The problem is that their

> I think the understanding issue is that all banks are basically insolvent by design Banks are not balance sheet insolvent at all. The problem is that their liabilities are deposits which are very short term and depositors can show up and demand money, while their assets are loan paper which is typically very long term. They can become cash insolvent fairly quickly during a run, that doesn't mean that they are "insolvent by design" though. > However, what caused the desire to get out is bad management at the bank and unrealized losses because the bank had a large portfolio of mortgage backed securities they weren't required to mark to market (thanks dumb regulators) Rather the inverse. If they had been able to hold their securities to maturity then they would have been fine. The problem is that the drawdown in deposits forced them to sell securities and inherently mark them to market, which made them balance sheet insolvent. If regulators forced them to market to market that would have just created more panic, that isn't really a solution. What they needed was to stress test their portfolio back in 2021 when they were buying mortgages against a 6% federal funds rate, and avoid buying so much in order to not have so much interest rate exposure. In 2021 that would probably have been considered laughable.