1 These events reinforced each other and generated uncertainty about both the solvency and liquidity of money market participants, as the extent of sub-prime exposures was unknown and counterparties could not distinguish good banks from bad.
2 Longer-term unsecured money markets, the most heavily exposed to counterparty credit risk, showed signs of stress, as signalled by the spread between the three-month unsecured interbank rate (Libor for the US and Euribor for the euro area) and the overnight index swap in three months’ time (OIS), a standard measure of tensions in unsecured markets.