What happens when a Bank goes Bust?


Normal Insolvency: Banks can become insolvent when loan defaults exceed shareholder equity, rendering assets less than liabilities. Cash Flow Insolvency: Bank runs or liquidity crises can lead to insolvency, where withdrawals outpace a bank's ability to pay. Importance of Deposit Insurance: In countries without deposit insurance, insolvent banks may fail to repay depositors fully, triggering financial instability.


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