These two concerns led to a significant increase in interest rate spreads and to a decline in the liquidity of short-term bank-funding markets in many countries. Now, it is important to note that the decline in the liquidity of bank-funding markets and the decline in the liquidity of asset markets in general are not unrelated.
Indeed, there are theoretical reasons to believe that market liquidity and the funding liquidity of banks with trading operations are mutually reinforcing, thus leading to the possibility of a "liquidity spiral" in a downward or upward direction.