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An insolvent bank is one whose liabilities exceed its assets, but both assets and liabilities include future cash flows which are estimated and discounted to a present value so the extent to which the company is insolvent is can change if the basis of estimation changes.

The people who have bought into these banks have not bought when all shares in the open market (which keeps the balance sheet unchanged. I presume effectively the bank has issued them with new shares, and if they inject enough capital to make the bank barely solvent everything can keep running.

We have met the enemy, and he is us — Pogo

by Migeru (migeru at eurotrib dot com) on Mon Dec 17th, 2007 at 04:07:22 AM EST
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