This discrepancy reflects a number of factors, including declines in participation, but an important reason is the slow growth of productivity during this recovery; intuitively, when productivity gains are limited, firms need more workers even if demand is growing slowly.
So the priority is ensuring that all agents are well-prepared and preventing harmful feedback loops between the real economy and the financial system. Rising insolvencies will certainly leave a mark on banks’ balance sheets. Corporate insolvencies lead to credit defaults. This weighs on banks’ capital ratios. Banks may attempt to reduce their lending in order to stabilise capital ratios.