Theoretically, during a ﬁnancial crisis, the Fed is supposed to act as a lender of last resort to

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The Fed is supposed to act as a lender of last resort to solvent banks that are illiquid, meaning that they have temporary cash flow problems but their assets exceed their liabilities. The Fed is not supposed to bail out insolvent banks that have more liabilities than assets, as this would be seen as rewarding bad management and could create moral hazard. The Fed also does not necessarily need to step in to help insolvent banks that are already highly liquid, as they should not be facing liquidity problems in the first place.

Theoretically, During a ﬁNancial Crisis, the Fed Is Supposed to Act