In fact, the collapse of Bear Stearns provides a striking example of how the ramifications of a single nonbank firm’s troubles can extend throughout the financial system, threatening public confidence and complicating any resolution efforts. These developments thus raise a number of issues for managing financial crises.
The sheer size of the financial markets, the many different counterparties and the interdependencies among participants suggest that significant disruptions from any portion of the market – bank or nonbank – could “freeze” financial transactions and activities and consequently harm the real economy.