Commercial banks, for whom judging credit risk is their life blood, were as guilty as any other institutions. Traditional practices of creditors of covering their exposures by requiring collateral that was marked-to-market proved insufficient as market values fell, creating a circular and expanding effect. •  Second, market participants shared an insufficient recognition of the role of market liquidity in risk management.
An important point here is the link between credit and market risk, and the fact that market prices can change sharply when key market participants pull out. In the proverbial “race for the door,” nearly everyone gets trampled. •  The last point I will note relates to the over-reliance by practitioners on quantitative tools.