In September, the crisis intensified when the collapse and subsequent bankruptcy of Lehman Brothers triggered a sequence of events that brought credit markets – and in particular, the commercial paper (CP) market and interbank funding market – to a near standstill. 1 The enormity of these events – and their potential implications for the economy – should not be underestimated.
Credit plays a critical role in the undertaking of almost all production activities in the economy and a large portion of expenditure activities as well. The breakdown of credit markets that followed the collapse of Lehman, if left unchecked, could have meant a very significant contraction in economic activity.