, but it may not be deep enough to prevent large price swings when demand for liquidity is significantly above the norm. this consideration would be most relevant in the markets that are amenable to high - frequency trading, and automated trading more generally, where assets are fairly standardized, such as equities and u. s. treasury securities, and less relevant in markets where securities are more idiosyncratic, such as corporate bonds. it is also possible that markets that more readily lend themselves to high - speed trading may be characterized by relatively greater concentration over time. achieving the speed necessary for high - frequency trading requires large technology investments that necessarily may support a relatively more limited number of market participants. greater concentration in turn might be associated with lower resilience at times of stress. the possible effect of hfts on the resilience of market liquidity is an important topic for future research. of course, other developments may be affecting liquidity in financial markets. for example, market participants have indicated that changes in participants ’ risk - management practices may be contributing to reduced market liquidity. in particular, the experience of the financial bis central bankers ’ speeches crisis may have led many participants to reevaluate the risk of their market - making activities and either reduce their exposure to that risk, become more selective, or charge more for it, thereby reducing liquidity. 4 it is also worth noting the increased role of asset managers on the buy side of the fixed income markets. during normal market conditions, the demand for liquidity from this group of bond holders is likely relatively small, since asset managers acting on behalf of retail investors generally buy bonds to hold them for some period. moreover, managers of openend funds hold liquidity buffers that enable them to respond smoothly to normal redemption demands. however, because the large increase in bond fund holdings is relatively recent, little is known about how these funds will react to periods of market stress or to abrupt changes in financial conditions and the adequacy of their liquidity buffers for such situations. because funds potentially allow daily redemptions even against illiquid assets, it is possible that redemptions could be magnified in stressed conditions as individuals try to redeem early, which in turn could lead to liquidations of relatively less liquid assets, thereby amplifying price volatility and reducing market liquidity. if in fact liquidity resilience has declined recently, it may be a transitional development that will be corrected going forward as

loan, and as the government as a whole lacked appropriate resolution authority or the ability to inject capital, the firm's failure was, unfortunately, unavoidable. the federal reserve and the treasury were compelled to focus instead on mitigating the fallout from the failure, for example, by taking measures to stabilize the triparty repurchase ( repo ) market. in contrast, in the case of the insurance company american international group ( aig ), the federal reserve judged that the company's financial and business assets were adequate to secure an $ 85 billion line of credit, enough to avert its imminent failure. because aig was counterparty to many of the world's largest financial firms, a significant borrower in the commercial paper market and other public debt markets, and a provider of insurance products to tens of millions of customers, its abrupt collapse likely would have intensified the crisis substantially further, at a time when the u. s. authorities had not yet obtained the necessary fiscal resources to deal with a massive systemic event. the failure of lehman brothers and the near - failure of aig were dramatic but hardly isolated events. many prominent firms struggled to survive as confidence plummeted. the investment bank merrill lynch, under pressure in the wake of lehman's failure, agreed to be acquired by bank of america ; the major thrift institution washington mutual was resolved by the federal deposit insurance corporation ( fdic ) in an assisted transaction ; and the large commercial bank wachovia, after experiencing severe liquidity outflows, agreed to be sold. the two largest remaining free - standing investment banks, morgan stanley and goldman sachs, were stabilized when the federal reserve approved, on an emergency basis, their applications to become bank holding companies. nor were the extraordinary pressures on financial firms during september and early october confined to the united states : for example, on september 18, the u. k. mortgage lender hbos, with assets of more than $ 1 trillion, was forced to merge with lloyds tsb. on september 29, the governments of belgium, luxembourg, and the netherlands effectively nationalized fortis, a banking and insurance firm that had assets of around $ 1 trillion. the same day, german authorities provided assistance to hypo real estate, a large commercial real estate lender, and the british government nationalized another mortgage lender, bradford and bingley. on the next day, september 30, the governments of belgium, france, and luxembourg injected capital