 In September 2008, when the US government decided not to bail out the investment bank Lehman Brothers, credit markets went from being strained to completely broken and the Libor-OIS spread blew out to over 350bps.An increase in counterparty risk reduces lending banks’ expected payoffs from providing unsecured funds to other banks and thus lowers their incentive to transact with one another.This is a result from Stiglitz and Weiss (1981)