Interbank lending dried up and borrowing from the Central Bank carried a stigma. So the banks started a price war. You are familiar with the concept of a price war, and why it's not necessarily a good thing for firms to engage in it, are you not?

In the short term, price wars are good for consumers, who can take advantage of lower prices. Often they are not good for the companies involved. The lower prices reduce profit margins and can threaten their survival.

In the medium to long term, they can be good for the dominant firms in the industry. Typically, the smaller, more marginal, firms cannot compete and must close. The remaining firms absorb the market share of those that have closed. The real losers then, are the marginal firms and their investors. In the long term, the consumer may lose too. With fewer firms in the industry, prices tend to increase, sometimes higher than before the price war started.

There are three stories about the euro crisis: the Republican story, the German story, and the truth. -- Paul Krugman