Indeed, this spread has been widening again since early November, to around 75 bp today. Since the interbank credit markets are uncollateralised, this large premium presumably reflects increased liquidity and credit risk concerns, even among the largest banks. Liquidity and credit risk What are the main causes behind this unexpected upsurge in liquidity risk and credit risk?
I would stress two key factors: information failures in credit markets; and weaknesses in the “originate-and-distribute” business model adopted in recent years by large internationally active banks.