Citing an article in The Independent, Mike Shedlock notes that British Banks are “technically insolvent.” Curiously, someone yanked the article from the Independent’s site. Thankfully, Mike reprinted the full text of the article which is (for the time being) available in a cached version.

The article says that British banks are insolvent on a mark-to-market basis, a problem that banksters are quick to dismiss:

The warning does not mean British banks are about to go bust, because the assessment is purely theoretical, and RBS said the position was “not unusual at this stage in the economic cycle”.

It’s just theoretical, you see. Nothing to worry about. Theoretically, the assets they are holding are worth less than their fair market values. So, while the book value of their assets exceeds their liabilities, they’re insolvent theoretically because the market value of these assets is insufficient.

There’s nothing theoretical about this: book values don’t pay the bills, market values do.

Sure, if the banks are able to suspend their obligations, and hold these assets until the market values are in line with book, then they’ll no longer be “insolvent.” But if an individual facing foreclosure was able to suspend the process until his home was market-valued greater than the balance due on his mortgage note, or if he could extract special favors, bailouts and guarantees from his government, he’d only be “technically” or “theoretically” insolvent, too.

The fact of the matter is that this is only part of the problem. Banks are always insolvent.

In any fractional reserve banking system, the banks are guaranteed at all times and without exception to have liabilities/obligations far in excess of their deposits. Since the banks which promise to keep your money “on demand” could never fulfill this promise for all (or even a relatively small minority, depending on the reserve ratio) of their depositors at the same time, they are all strictly speaking, insolvent 100% of the time.