As some withdrawal of monetary accommodation commenced in response to perceived or visible inflationary pressures, the sub-prime crisis revealed these vulnerabilities starkly as confidence plunged, markets froze and triggered off panic among investors and lenders regarding their inability to value complex risky assets and structured derivative products.
With the deterioration in credit confidence, banks have been forced to advance loans to their off-balance sheet "special investment vehicles (SIVs)" which uses up their capital thereby rendering other borrowers credit constrained.