However, non-deposit taking investment banks and primary dealers play a systemic role in their crucial broker-dealer function, too. They perform a key role in maintaining market liquidity in a broad range of unsecured and secured markets. If they face funding liquidity constraints, market liquidity will be widely affected, with potential negative repercussions for the banking sector.
The interaction between market liquidity and funding liquidity is best illustrated by a concrete example: should the market liquidity of a particular asset be low, it will also be more difficult to use it as collateral to raise funds, for instance in the repo market.