Why would banks and exchanges need to pause withdrawals if they’re in financial trouble?
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When you deposit money in a bank, the bank does not simply hold those funds for you. They will lend “your” money to other people (and businesses). They keep enough cash on hand to be able to cover most withdrawals, but if EVERYONE wanted their money all at once, they don’t have enough cash to give it all back. This is what is known as a “bank run”, and when it happens, often the bank in question will become insolvent and disappear…along with the savings of everyone who had money deposited.
In the US, the FDIC insures deposits up to $100,000. So if this happened to you or me, we could (in theory) still get our money, as long as the Federal Government is willing and able to cover the losses. In other countries, like China, there is no such mechanism or protection, and customers who get stiffed by the banks are just out of luck. (which is why there are massive protests in China right now!)
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