# Bank Failure Mechanisms ## Definition The processes by which banks can become insolvent, including excessive note issuance, inadequate reserves, and over-extension of credit. These mechanisms often involve a cycle of drawing and redrawing bills to maintain liquidity. ## Source Chapter Book II, Chapter 2 ## Context Smith analyses how banks can fail through various mechanisms, particularly focusing on the cycle of excessive credit extension followed by attempts to maintain liquidity through increasingly desperate measures. ## Economic Domain Regulation ---