During a bank crisis:

Question

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During a bank crisis, it becomes important for regulators to be able to distinguish insolvent from illiquid banks. Insolvent banks have liabilities that exceed their assets and are unable to pay off their debts, whereas illiquid banks have short-term cash flow problems but have sufficient assets to cover their long-term obligations. Distinguishing between the two types of banks is crucial for determining the appropriate course of action, such as providing liquidity support or pursuing resolution measures.

During a Bank Crisis