The answer is not so definite that it is a sure yes or a sure no to the first question that is Providing loans to the solvent but less liquid financial institutions.
Financial institutions are made up in two different categories one is banking sector and another is non banking. In the banking sector it is a necessity to have some reserves that are liquid in nature it is for daily working and emergency in the banking sector. but the non banking sector does not have to be much liquid because they are non deposit taking in nature so they do not undertake daily transactions and have a less emergency fund. This way it is not wrong to give loans to the less liquid financial institutions. Bu the policies should not be so liberal and certain hurdles should be created to slow down the faster speed in finances.
Insolvent financial institutions
In any country it is the responsibility of the apex banking authority to maintain the decorum and trust of banking sector in the country and for such purposes the FED comes under the responsibility to give hand to the sinking commercial banks(as the apex bank is called the Lender of the Last Resort). The banks which are getting insolvent means not able to pay their debts are given loans to stand again. This is a kind of loss to the Banking system of the country but is a necessity as well because sinking of a bank disturbs the economy as a whole and affects a lot many aspects of the economy.
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Do you agree with the Fed loaning money to financial institutions that are solvent, but illiquid?...