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Balance Sheet Insolvency occurs when Liabilities are greater than the Assets resulting in negative capital...

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Accounting

Balance Sheet Insolvency occurs when Liabilities are greater than the Assets resulting in negative capital equity. (In other words, the Equity Capital account has gone to zero or negative.) For a Financial Institution, Insolvency Risk can be defined as the risk that there is insufficient capital to offset either a decrease in the market value of assets relative to liabilities or an increase in liabilities relative to the market value of assets.

A. Describe a situation where Insolvency Risk could be caused one of the many risks that a Financial Institution may face.

B. Describe the best protection against insolvency Risk at a Financial Institution.

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