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>Having fewer assets than liabilities does not necessarily make a bank insolvent Having fewer assets than liabilities is the literal definition of insolvency.
by itsoktocry 4y ago
>Having fewer assets than liabilities does not necessarily make a bank insolvent
Having fewer assets than liabilities is the literal definition of insolvency.
- fowtowmowcow 4y agoIf Banks debt > money+interest lent out At the same time then maybe the bank is insolvent However all debt typically isn't all due at the same time just like money lent out isn't paid back all at the same time. This stuff is spread and balanced out so that ideally the bank has little liquid assets it needs, it is then able to borrow and lend out the maximum amount of money it can. That is if it can lend money at a higher rate than it borrows it's making money. Otherwise it ain't.
- maerF0x0 4y agoI thought insolvency was when you didnt have the current assets to pay currently due liabilities? A 30 year note for $1M doesnt have to be paid right now. But it's ~$4000 per month interest does. So you can have $4k in cash assets and $1M in debt and still be solvent (for now).
- legitster 4y agoI think this is why insolvency is bit opaque for banks. Literally any bank will be insolvent if everyone wants their money out at the same time. So you have to be pretty clever about how you estimate the risk of insolvency.