Those creditors and counterparties, which included money market funds and other highly risk-averse investors, might well have responded to the sharp and unexpected reduction in the liquidity of their portfolios, as well as to possible losses and a heightened risk of future losses, by pulling back from providing secured financing to other primary dealers.
In those circumstances, in which a much broader and less containable liquidity crisis threatened to emerge, the Federal Reserve Board judged that it needed to use its emergency liquidity powers to avoid a bankruptcy filing by Bear Stearns.