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Are you sure about the technical definition of insolvent? Any definition I can find defines insolvent as the inability to pay debts as they come due. Insolven
by jjeaff 4y ago
Are you sure about the technical definition of insolvent?
Any definition I can find defines insolvent as the inability to pay debts as they come due.
Insolvent is when your current liabilities exceed the current market value of your assets.
Otherwise, one could remain forever solvent by simply putting $100 into a total market index. Sure, I owe $1m right now, but in 1,000 years, my $100 will be worth more than enough to pay off the debt.
- labster 4y agoUnder this definition, every non-central bank would become insolvent if subjected to the same conditions as SVB. If you take away $42B in one day in withdrawals, every single bank no longer pay its debts to depositors. Which is fine but not all that useful. We know bank runs make banks fail.
- AnimalMuppet 4y agojeaff said: > Insolvent is when your current liabilities exceed the current market value of your assets. If I have a bank, and it's solvent (by jeaff's definition), and then it faces $42 billion in withdrawals in one day, then it's still solvent by jeaff's definition. It may be illiquid (unable to come up with $42 billion in cash in 24 hours), but the assets still exceed the liabilities. (Or, they might not even have been illiquid, if they could sell the assets at full price within a day.) So, no, your argument does not disprove jeaff's definition.