Why would banks and exchanges need to pause withdrawals if they’re in financial trouble?
In: 101
When you deposit money into a bank account, the bank doesn’t just throw it into a vault. They loan it out to other people. They keep some of it, so people can withdraw some of their money, but most of it is paid out in loans to others.
When a large amount of those loans default, the bank might not be able to get enough money to pay out their customers, and they’ll pause withdrawals until they can borrow enough money (or call in enough overdue loans) to cover what people want to take out.
The only real alternative would be to allow people to withdraw money until the bank literally ran out of cash, and that would be a really bad situation. They couldn’t pay their employees, and it would be really hard for them to borrow money or even stay in business.
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