And as mentioned, they were common themes of the distress at nonbanks that we observed during the crisis. Thus, we will not go far wrong if we begin by considering how to promote solvency and liquidity, taking into account the unique structures and activities of each type of nonbank. Liquidity challenges vary across nonbank firms and activities.
In some, the issue is whether a firm can fund itself in a distressed situation. For example, a broker-dealer that relies heavily on short-term wholesale funding may find its funding evaporating at the first sign of trouble – a situation that could force the sale of assets at fire sale prices.