However, it cannot create markets where there is no private desire for them, nor can it change the fundamental value of a security. Thus, when confronted with a market failure, a central bank should identify the basic nature of the failure and act when it judges that a shock has distorted the liquidity-risk premium embedded in the price of a security.
In either event, the bank could fail – because of illiquidity or insolvency or both. These crises could, of course, happen to any business. Any firm could have bad assets or inadequate funding and fail as a result.