A liquidity crisis is a consequence of cash flow problems within a firm. This happens when a firm's assets exceed its debt. Usually, for a liquidity crisis to happen, most of a firm's assets need to be illiquid. This means that they can not be sold quickly. In this instance, a firm is not able to meet its prevailing payment requirements. A liquidity crisis is usually temporary.

In a solvency crisis, a company goes bust. It cannot survive no matter how much credit it can source. The Lehman's Brothers are an excellent example of a firm that went through a solvency crisis. Even though the Fed was willing to give the bank credit, the bank's primary problems could not be solved by liquidity. Insolvency is a point of no return. Greece also went through a solvency crisis.

During the South Sea bubble of 1720, the British government was unable to pay its due debts. The debts were concerning supplies made by naval contractors. The government decided to remedy this by contracting the help of the South Sea company. The company offered the creditors its shares to cover the debt. The company was also called upon to help with Britain's national debt. Towards these ends, the company offered to restructure the national debt. When the South Sea bubble burst, the consequences were immense. The South Sea bubble has become a symbol of fraud and folly in financial markets. A liquidity crisis can generate into a solvency crisis in the long run. This is because markets fear illiquidity. Lastly, the ability to access funds is beneficial, but it does not solve the fundamental problem that arises in a solvency crisis.