In either or both of these eventualities, the potential insolvency of the financial firm is a problem not just for shareholders, employees, and creditors, but for the financial system as a whole. A final point is that a financial firm, through the operation of one or both of these dynamics, can shift from viable to non-viable in quite a short period of time.
And, once the confidence of counterparties and customers is shaken, and funding withdrawn, the game is essentially over. Of course, matters are made worse if the firm did not maintain adequate capital levels or relied too heavily on short-term funding, as was the case with many of the firms that failed or came under severe pressure in 2008.