Question

Suppose that a bank has loaned money to two businesses: a trustworthy computer manufacturer and a risky mining venture. Unfortunately, the mining venture fails, and the mining firm goes bankrupt. The bank has no insurance for this situation. Now, on its balance sheet, the bank has more liabilities than assets. What is this situation called, and what is the result of this situation? Illiquidity. Shares of the bank are not traded as often on a stock exchange. O Bank run. Depositors run on the bank to cash out before the bank runs out of money. Fire sale. The available assets of the bank are sold for pennies on the dollar. Insolvency. The bank cannot pay back depositors. O Consumption. The money that was lost has no effect on the bank's operating status, but the firm's loss counts as part of GDP

Answer 1

Ans - Insolvency,The bank cannot pay depositors.

Explanation:

As the bank assets is less than its liabilities so this situation is called insolvency because even if bank sold out its all assets it cant pay to all liabilities ( including depositors).