Institutions and markets that are initially illiquid can quickly become insolvent without the appropriate funds. The distinction may be even trickier in the case of sovereign insolvency. One could argue that governments have at their disposal an even greater range of possible policy responses to crises than do firms or markets, and so they face a greater range of potential outcomes.
Around the world over the past few weeks, central bankers, market participants, academics, and the media have been wrestling with the question of what it means to be an effective lender of last resort. Appropriately providing liquidity while limiting the risk of moral hazard has always been a challenge.