A bank will become illiquid if:

Question

Quizplus · Accepted Answer

If a bank has short-term liabilities, such as deposits that can be withdrawn quickly, that exceed its short-term assets, such as cash reserves and loans that can be quickly liquidated, it may become illiquid and unable to meet its obligations. Becoming insolvent (B) means that a bank's liabilities exceed its assets, regardless of the timing of those obligations. A bank can be solvent and liquid (C) if it has enough assets to cover its liabilities and those assets can be easily converted to cash. While a financial crisis (D) can contribute to liquidity problems for banks, it is not the only reason why a bank may become illiquid.

A Bank Will Become Illiquid If