Those risks were typically measured and managed in isolation from one another, whereas in reality, they are closely linked. A credit event that drives down the value of a particular asset is likely to reduce the liquidity and price of that asset as well, at least in the short term.
In response to the increased competitive pressure from markets, banks employed three strategies: increasing leverage, greater use of securitization, and the writing of deep out-of-the-money options. Though not recognised at the time, each increased risk in the system. By borrowing in short-term wholesale markets to fund asset growth, banks became more dependent on continuous access to liquidity in money and capital markets.