Question: a. What is the difference between a bank that is insolvent and one that is illiquid? Does the difference matter? Use examples to explain your

a. What is the difference between a bank that is insolvent and one that is illiquid? Does the difference matter? Use examples to explain your answers.

b. Suppose you are the lender of last resort and a bank approaches you for a loan. You examine that the bank has $1,000 million in assets, mostly in long-term loans, and $800 million in liabilities. It is experiencing usually high withdrawal rates on its demand deposits and is requesting a loan to get through the period of difficulty. Would you grant the loan? Explain your choice.

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