This reflects a problem of confidence and trust among banks, even in the presence of abundant liquidity in the banking system. Lack of confidence among banks leads to a sustained reduction in interbank activity.
As regards the funding markets most affected by the turmoil, anecdotal evidence and bilateral contacts with market participants indicate some recent improvements: •  In the FX swap market, the degree of market depth and liquidity has improved with turnover increasing again, while spreads have narrowed, particularly for short term periods up to one week.