Economics Stack Exchange is a question and answer site for those who study, teach, research and apply economics and econometrics. It only takes a minute to sign up.
Sign up to join this community
For instance, in 2008, the Royal Bank of Scotland saw its stock price drop by ~30% in a day, and it was apparently impossible for the bank to make it till the end of the day because it would run out of cash.
Why is that so? How can its valuation affect in such a short term the cash it can disposes of?
It appears to me that it is the other way round: The RBS was running out of cash which is why the stock price was dropping.
Stocks usually don't affect the immediate operation of a company, since they are traded on secondary markets (stock exchanges) among stock owners, not bought from / sold to the actual company which issued the stock.
From the answer to the question How does stock market drop affect the economy if it doesn't affect the corporations? I learned that "companies still routinely issue new stocks when they are in need of cash". When the stock price is dropping no one wants to buy new stocks of the company for a price that fits - and the company won't get the cash it needs. This is "running out of cash".
