A bank is considered illiquid if:
A) it has short-term liabilities greater than its short-term assets,but overall assets greater than liabilities.
B) it has liabilities greater than the value of its assets.
C) the value of its outstanding loans is greater than the value of its deposits.
D) it has lost its FDIC coverage.

Question

Quizplus · Accepted Answer

A bank is considered illiquid if it has short-term liabilities greater than its short-term assets, but overall assets greater than liabilities. This means that while the bank may have enough assets to cover its liabilities, it may not have enough liquid assets to cover short-term obligations like customer withdrawals or loan disbursements. This could lead to a situation where the bank is unable to meet its obligations on time, leading to a crisis of confidence and possible bank failure.

A Bank Is Considered Illiquid If