And the spreading of risk expanded the possible sources of instability in ways not always transparent. As a result, the sources of financial instability changed once more: financial instability could also result from market instability (the recent suspensions of short-selling in several countries acknowledge it), from non-bank financial institutions and from ever larger, private clearing and settlement systems.
Moreover, liquidity itself could become a contagion channel by triggering discreet changes in asset prices, in the capital base of financial institutions, and thus by feedback onto banks’ funding capacity. As a result, interbank markets have now become a source of crisis, or even aggravate a crisis, as fundamental uncertainty makes it too costly for banks to assess counterparty risk.