In the West, before banks lend money they do a credit check on the customer. Well, they stopped doing it for a while in America. Hence the sub-prime crisis. They lent money to people who were in no position to pay them back. The loans are now dodgy, there’s a good chance that a lot of them won’t get paid back, so the banks are not doing much business with each other any more. They just don’t trust what they’re getting from other banks.
There’s an interesting article in Slate magazine about trust.
U.S. borrowers do not trust themselves. Banks do not trust themselves, nor their clients to repay, nor other banks. They have no security at the moment, and are losing their self-respect.
The market for financial services has become anonymous. No need to see anyone, just call a credit rating agency for a check.
Contrast this with micro banks in developing countries like Grameen and Kiva. There are no credit checks, just trust. They are trusted by the people who lend them money and the people who borrow from them. The bank and the customer are close.