The article examines how liquidity and credit risks interact in the interbank market. Banks face unexpected liquidity shocks and the possibility of insolvency due to bad news, leading to a potential market gridlock. To mitigate these risks, banks charge a premium for lending long-term and prefer short-term borrowing. This model helps explain the liquidity crunch during 2007-2009, including high interest rate spreads, increased overnight trading, and the central banks' need for operational changes.