Because supporting deposit and creditor payments in banking isn’t generally about solvency, it’s about liquidity. So long as depositors and creditors believe that they’ll get paid – that is, once a run on the bank is taken off the table – even a struggling bank – technically insolvent – can meet its obligations. For a long, long time. And often until it’s no longer insolvent. (Back to the analogy of the insolvent surgeon out of medical school.) But I realize that this is an inconvenient fact vis-a-vis your world view.
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Whoah, whoah, whoah! I’ve seen some circular arguments in my day but this one takes the cake. The only reason the big banks can meet their obligations is because the short-term debt that has to be rolled over occasionally has been guaranteed by the government. Otherwise, creditors would not re-extend that credit and the big banks would be the very definition of insolvent — they couldn’t meet their obligations.
This is exactly what happened to Bear Stearns. I guess you would argue that Bear Stearns wasn’t insolvent, they just ran out of liquidity.
