'A company can recover from liquidity problems, if the business is sound and the assets valuable. Watering can get it through a dry spell. But if it is diseased, no amount of water will save it.' Opinion Frances_Coppola FTX bitcoin crypto web3
Frances Coppola, a CoinDesk columnist, is a freelance writer and speaker on banking, finance and economics. Her book “The Case for People’s Quantitative Easing” explains how modern money creation and quantitative easing work, and advocates “helicopter money” to help economies out of recession.
Frances Coppola, a CoinDesk columnist, is a freelance writer and speaker on banking, finance and economics. Her book “” explains how modern money creation and quantitative easing work, and advocates “helicopter money” to help economies out of recession. The confusion between liquidity and solvency is partly caused by the generally accepted definition of “insolvency,” which is “unable to meet obligations as they fall due.” This sounds very much like shortage of cash, i.e., a liquidity crisis. But shortage of cash isn’t necessarily insolvency. Suppose a company that has lots of long-term assets but very little cash is suddenly hit with a margin call on an interest rate swap.
Contrary to popular opinion, so-called “fractional reserve” banks are not generally insolvent. Their assets exceed their liabilities: In banking parlance, the difference between the two is known as “capital,” and for licensed banks the size and composition of that difference is governed by capital regulations.
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