There is a massive conflation of insolvency and illiquidity going on here, because the distinction requires more mathematical finesse than most people have. A

There is a massive conflation of insolvency and illiquidity going on here, because the distinction requires more mathematical finesse than most people have. A bank is illiquid if its holdings require time to sell at "market price". Selling things like mortgages requires time because the buyer has to perform due diligence. If i have to sell mortgages right now, I'm going to be getting an awful price for them. OTOH, i can sell treasuries in a fraction of a second at the ask price minus epsilon. It's not a liquidity problem, its an assets < liabilities problem, (as you clearly state, I'm just frustrated by the discussion here).