- The collapse of Silicon Valley Bank continues to cause market tensions
- And rising interest rates could increase the risk of future crises
What is the difference between solvency and liquidity?
In simple terms, liquidity is a measure of ‘flow’: does an institution have enough short-term funds on hand to meet its immediate financial obligations and avoid default? Solvency, on the other hand, is a ‘stock’ measure, and requires an institution to be able to pay its debts over the medium and long term. To be solvent, an institution’s assets need to exceed its liabilities.