Kapie

my understanding is similar to Andrew.. the depositors are a liability on the bank's balance sheet and if they withdraw their money then the liability decreases but the assets still remain the same. To maintain the liquidity reserves, the banks will either have to 1. liquidate the assets or 2. raise cash so they can lower their leverage, and they usually opt for option 2, i.e use the assets as collateral to raise cash to maintain the liquidity levels. I think this is what happened in the 08 crisis when the Fed started taking in crappy assets(relative term) as collateral to provide liquidity.