There are two related concepts: liquidity and solvency. When a bank accepts deposits and loans some of those deposits out, i.e. fractional reserve banking, it i

There are two related concepts: liquidity and solvency. When a bank accepts deposits and loans some of those deposits out, i.e. fractional reserve banking, it is exchanging a liquid position (cash) for an illiquid position (the loan). However, the bank is still solvent because the loan has a value and the value of the loan is typically close to the value of the deposits. What we're seeing now is that the banks are actually insolvent, which means they did everything I listed above, but now the value of those loans has dropped enough where they may have serious issues meeting their obligations to depositors. You can't just waive your hands in the air and say "this is all fine because of fractional reserve banking."