Bank Insolvency and Liquidity
Comments focus on debates over whether failing banks face liquidity crunches or true insolvency, what happens to loans and depositors in bank failures, and risks of liquidation or runs.
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Good luck getting your money through the legal system when the bank collapsed!
The don't have a "liquidity issue", they are utterly insolvent.
They may have to liquidate eventually.
I'd say it's more of an issue that they are still trading when potentially insolvent
Is it normal for loans to be wiped clean in a bank failure?
Too big to fail doesn't necessarily mean that the investors (equity and debt holders) have anything left at the end.
That's assuming their bank hasn't gone under.
And become insolvent in a bank run?
A privately owned centralized debt exchange company can go out of business.
Sorry, you're right that their assets are also down. I didn't mean to deny that. It just seems that it was more a liquidity crunch than a solvency crunch. But maybe they cannot pay all their debtors?