Banks were able to raise the required cash at negligible cost as and when they arose the need for liquid cash. Because of this lack of liquid money, they were not able to meet their obligations when they become due, and they had to accept certain losses.There existed a difference between short term assets and liabilities and loans t o private sect or was very great in comparison with the total assets. Also the total deposit of the bank consisted large share of other banks deposits. Banks relied more on the deposits for lending purpose which got reduced as the panic stricken depositors with drew their money. Banks relied heavily on few large depositors, and this constituted one of the major factors for liquidity crises.

Credit Risk:

• One of the major activities of the banking business is lending. Large revenue has been generated as the banks give more loans for various purposes. Development of the economy through the development of large as well as small scale industry is possible only when their existed well established bank with adequate funds to provide. But in giving loans, care and cautious should be practiced in order to avoid defaults. Scrupulous scrutiny is required for knowing the credit worthiness of the borrowers.
• At certain times UK Banks experienced the credit risks in the following circumstances.
• a. Less credit worthy customers availed the loan facility of the Bank and their default led to the credit crunch.
• b. Poor judgement of credit risks and failure to take precautionary steps
• c. Having high risk weighted assets in comparison to risk free assets.
• The bank failure in to would be avoided by considering the above factors.