Solvency of financial institutions could be bigger threat than liquidity in next crisis, economist says

In a sign of the darkening outlook for the global economy and financial markets, the continuing debate over whether the next major crisis is on the way is shifting into a conversation about just what type of crisis it will be.

The distinction matters because central banks can generally deal with liquidity crises, by providing greater access to credit and unlimited amounts of money if needed. A solvency crises, on the other hand, poses a graver threat to the economy because institutions theoretically wouldn’t be able to stay alive no matter how much help they got.

Recent turmoil in the U.K. bond market, which has led to repeated interventions by the Bank of England, is “primarily a liquidity crisis,” Shearing said. “Instead, the real danger lurks in solvency crises .” To be sure, the 2007-2009 financial crisis and economic downturn has led to stricter regulation and oversight that should make commercial banks less vulnerable to solvency crises, he said. Even so, “sources of financial risk have a habit of materializing in a way that is difficult to fully anticipate in advance.”

DO NOT, I REPEAT, DO NOT USE OUR TAX DOLLARS TO BAIL OUT BANKS AGAIN 🤬🤬🤬

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