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The first phase was the abrupt liquidity crisis triggered by the turning of the global financial cycle and the subsequent collapse of Lehman Brothers. It provoked a systemic failure of funding markets and prompted global central banks to step in with forceful and coordinated interventions to provide essential liquidity to the banking sector. Without this response, the financial system would have collapsed and a far deeper recession would have ensued. Owing to the funding freeze, the classical interest rate instrument ceased to be the main signalling device of the monetary policy stance. The deployment of the central bank balance sheet as a stabilising instrument was a novelty, and immediately met substantial scepticism. First, there were concerns about moral hazard, given the unprecedented expansion of ECB credit to banks at a time when banks were under scrutiny for their mismanagement of risk in the pre-crisis period and for having precipitated the crisis in the first place. Second, there were also concerns about these liquidity injections paving the way for inflation. Owing to the incompleteness of the institutional structure of Economic and Monetary Union (EMU), the profound effects of the banking crisis were not addressed as swiftly in the euro area as in other jurisdictions. This paved the way for the second phase of the crisis, the sovereign debt crisis, which was amplified by the fact that banks predominantly hold debt securities of their own national governments.