Thursday, April 4, 2013

A quote from Mises

"The expressions solvency and liquidity are not always used correctly when they are applied to the circumstances of a bank. They are sometimes regarded as synonymous; but orthodox opinion understands them to refer to two different states....A bank may be said to be solvent when its assets are so constituted that a liquidation would necessarily result at least in complete satisfaction of all its creditors. Liquidity [on the other hand] is that condition of the bank's assets which will enable it to meet all of its liabilities, not merely in full, but also in time, i.e. without being obliged to ask for anything in the nature of a moratorium from its creditors."

- The Theory of Money and Credit.

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