That's another misconception propagate in the textbooks - and you can blame Keynes for this, it was in the Macmillan report that originated the false description. Banks do watch that issue aka "liquidity" very carefully. Part of it is that they work to keep transfers on their books as much as possible, but also borrow and lend to other banks (interbank lending market) to cover short term imbalances.
In the long term... any bank that is careful not to have too many insolvent loans is guaranteed an inflow of money from the capital and interest repayments - some of which will be on their books, and some will be coming from money deposited at other banks, effectively transferring the asset cash back.
It's actually quite an elegant system at this level. Horribly fragile with respect to losses on loans though.
In the long term... any bank that is careful not to have too many insolvent loans is guaranteed an inflow of money from the capital and interest repayments - some of which will be on their books, and some will be coming from money deposited at other banks, effectively transferring the asset cash back.
It's actually quite an elegant system at this level. Horribly fragile with respect to losses on loans though.