This paper examines the relationship between liquidity shortages and banking crises, showing that bank failures can cause liquidity shortages, leading to a cascade of failures and potential systemic collapse. Unlike solvency problems, liquidity problems arise from the contraction of a common pool of liquidity. Government intervention may be necessary, but liquidity and solvency issues interact, making it difficult to determine the root cause of a crisis. The paper proposes a robust sequence of intervention, emphasizing the importance of liquidity support. It argues that central banks should prioritize liquidity infusions to avoid severe consequences of a meltdown. The paper also highlights the role of bank-specific features, such as non-renewable demand deposits and the inefficiency of extracting cash from non-transferable loans, in creating systemic liquidity shortages. The analysis shows that bank failures can exacerbate liquidity shortages, leading to contagion. The paper concludes that interventions should balance the costs of different types of interventions against the risks of a meltdown. The model demonstrates that the behavior of banks and the interest rates prevailing in the economy are crucial in determining the outcomes of a crisis. The paper also discusses the implications of different types of interventions and the importance of understanding the root cause of a crisis to design effective policies.This paper examines the relationship between liquidity shortages and banking crises, showing that bank failures can cause liquidity shortages, leading to a cascade of failures and potential systemic collapse. Unlike solvency problems, liquidity problems arise from the contraction of a common pool of liquidity. Government intervention may be necessary, but liquidity and solvency issues interact, making it difficult to determine the root cause of a crisis. The paper proposes a robust sequence of intervention, emphasizing the importance of liquidity support. It argues that central banks should prioritize liquidity infusions to avoid severe consequences of a meltdown. The paper also highlights the role of bank-specific features, such as non-renewable demand deposits and the inefficiency of extracting cash from non-transferable loans, in creating systemic liquidity shortages. The analysis shows that bank failures can exacerbate liquidity shortages, leading to contagion. The paper concludes that interventions should balance the costs of different types of interventions against the risks of a meltdown. The model demonstrates that the behavior of banks and the interest rates prevailing in the economy are crucial in determining the outcomes of a crisis. The paper also discusses the implications of different types of interventions and the importance of understanding the root cause of a crisis to design effective policies.