The wholesale interbank market (where banks trade with each other) reduces the risk for banks making forward commitments to lend at retail— to households and firms, including exporters and importers. The collapse of the . housing bubble in 2007-08 impaired bank balance sheets so that banks became reluctant to lend to each other from counterparty risk. Consequently retail bank credit fell sharply, thus worsening the crisis. By 2009, the . government had responded by re-capitalizing large commercial banks and by flooding the system with liquidity so as to drive short-term interest rates close to zero. Although counterparty risk is now.
