To meet demand an FI uses funds on hand and, if short, borrows or sells assets to meet the deficit.
Excessive demand caused by unexpected demands or a lack of confidence can cause a crisis.
Sale of less liquid assets at fire sale prices could result in insolvency. Drain on DD funds can be offset by raising funds in other areas but cost higher. Use of rediscounting facility for liquidity purposes is at a punitive rate however excessive holding of cash etc is also expensive on an opportunity lost basis. Banks do however err on the side of caution by holding liquid assets in excess on minimum requirements. Borrowers may drawn down committed facilities eg.