Question
In reviewing a bank’s balance sheet, the liabilities are greater than the assets. What is the best explanation that could cause this to occur?
Responses
The bank is insolvent, unable to meet its financial obligations.
The bank is insolvent, unable to meet its financial obligations.
The bank is going bankrupt.
The bank is going bankrupt.
The bank is highly liquid.
The bank is highly liquid.
The bank has more money coming in that going out.
The bank has more money coming in that going out.
Responses
The bank is insolvent, unable to meet its financial obligations.
The bank is insolvent, unable to meet its financial obligations.
The bank is going bankrupt.
The bank is going bankrupt.
The bank is highly liquid.
The bank is highly liquid.
The bank has more money coming in that going out.
The bank has more money coming in that going out.
Answers
GPT-4o mini
The best explanation for a situation where a bank's liabilities are greater than its assets is:
**The bank is insolvent, unable to meet its financial obligations.**
Insolvency means that the bank's obligations (liabilities) exceed its resources (assets), which indicates a financial distress situation, leading to an inability to satisfy its debts. While bankruptcy may also be a consideration, the term "insolvent" directly describes the imbalance on the balance sheet.
**The bank is insolvent, unable to meet its financial obligations.**
Insolvency means that the bank's obligations (liabilities) exceed its resources (assets), which indicates a financial distress situation, leading to an inability to satisfy its debts. While bankruptcy may also be a consideration, the term "insolvent" directly describes the imbalance on the balance sheet.