A shadow banks sole assets comprise USD10bn cash (electronic bank deposits) and USD200bn securities. The securities act as collateral for an overnight repo (currently attracting a zero haircut) which is the shadow banks only debt. The following day the securities lose 10% of their value and this prompts the creditor to impose a 10% haircut on a fresh repo. Which of the following statements best describes the shadow bank's new situation?

• A. it has enough capital and cash liquidity to stay out of trouble
• B. it remains balance sheet solvent but has insufficient cash to pay off its debt
• C. it can avoid default since cash assets are adequate but is technically balance sheet insolvent
• D. it has inadequate cash liquidity and is balance sheet insolvent