Spreads on financial institution debt, in particular, have widened in the euro area and in the US reflecting uncertainty over the extent of future credit write-offs, the full recognition of offbalance-sheet commitments, and future earnings capacity.
The wide perception in the markets is that financial institutions face difficulties in maintaining earnings due to falling credit quality and declining fee income in a macro-economic environment already taxed by sharp rises in real production costs. As intermediaries tend to economise on capital, assets are being sold and lending conditions have tightened.