Insolvent: Liabilities exceed assets. Illiquid: Immediate demands for cash exceed liquid assets. Fractional reserve banking: Short term deposits are lent o

Insolvent: Liabilities exceed assets. Illiquid: Immediate demands for cash exceed liquid assets. Fractional reserve banking: Short term deposits are lent out as long term loans. Under normal conditions, a bank has capital (ie, its assets exceed its liabilities). The capital acts as a cushion, which means it is not insolvent, and not likely to become insolvent. On the other hand, fractional reserve banks are prone to liquidity crises (aka, a bank run), because while the bank will pretty much always have enough assets to give all depositors their money back, it will pretty much never have enough to do so immediately. Which is why real banks have depositor insurance (and also why depositor insurance is affordable to provide). The article is describing MtGox as being insolvent; and despite incorrectly using the term, it's not describing fractional reserve banking, and the two are not the same thing. MtGox didn't make long term loans (or any loans), and it did not suffer a liquidity crisis. It was insolvent because the money was stolen. It's a vastly different thing.