Why was it a problem for the bank to cash out stock?

The bank loses its liquid funds if it decides to cash out stock.

Explanation:

The cashing out of a bank's stock means that if there be a case when the people who have invested int he bank long term decide to pull out their money, the Bank would not have it available in liquid form to give it to them.

It is not advisable thus to use this method of giving away the liquid stock of the bank.

This practice is harmful for the economy as the dilution of the assets means that the bank can go under debt and in turn will have high interest rates.