Thus, financial institutions holding a large amount of the securitized products also incurred huge losses. In these circumstances, leading financial institutions faced a management crisis and Lehman Brothers filed for insolvency in September 2008. Financial institutions mutually make various transactions, and thus many debts and credits are mingled together.
Since financial institutions other than Lehman Brothers incurred losses, albeit to different degrees, they began to worry that their trading counterparts might go bankrupt. In such a situation, financial institutions became reluctant to lend to or borrow money from each other in the market. In addition, even when financial institutions lent to their counterparties, they charged high interest rates on the loans (Chart 4).