In three sentences or less, describe the difference between an illiquid commercial bank and an insolvent commercial bank.
An illiquid commercial bank means she does not have resources available to meet her current obligation, where as an insolvent commercial bank means she owes more than she own.
Therefore in business model of banks illiquid commercial bank is more risky for the creditors as they do not have the option of redeeming their claims for cash on demand or at maturity, but insolvent commercial bank is less risky for the creditors for redeeming their claims for cash on demand or at maturity as in long run insolvent became solvent by different monetary and internal policies.
Illiquid of commercial bank is a long run in nature where as an insolvent commercial bank is a short run in nature.
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