Large Bank Examination Workshop February 2026

Two Potential Situations

• Insolvent Financial Institution  Financial Institution “fails” — value of liabilities exceeds value of assets in long term  Liabilities>Assets • Solvent Financial Institution  “Liquidity crisis”  Can’t cover short term debt (deposit withdrawals), but has good assets  Can still be shut down  Bad economic disruption • Huge challenge for regulators and central banks to determine which of these situations applies to troubled banks

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Classic Bank Run

• Depositors lose confidence • Withdraw funds • Financial Institutions forced to sell assets (loan portfolio)  “Fire sale”/distressed/ low prices • Financial Institution can run out of assets and fail Source: https://wiki2.org/en/Bank_run

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