The unwinding of these excesses has contributed significantly to the recent increased turbulence in financial markets. The events of recent months are well known and, at this stage, do not require lengthy recall. The catalyst for the sharp move from risk-taking towards deleveraging over the Summer was triggered by escalating concerns about the state of the US subprime mortgage market.
While, a priori, the expectation was that these problems would be confined to that market segment, trouble spread rapidly. Significant disruption occurred in the asset-backed commercial paper (ABCP) market and, in turn, moved relatively quickly to the unsecured interbank money market, as concerns escalated about counterparty credit risks.