Loan charge-offs do not lead to insolvency risk because when loans are written off both loans and liabilities are reduced.

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Loan charge-offs can lead to insolvency risk because when loans are written off, the bank's assets and equity are reduced and their non-performing loan ratio may increase, which can affect the confidence of depositors and investors in the bank's ability to repay its liabilities.

Loan Charge-Offs Do Not Lead to Insolvency Risk Because When