In corporate markets, highly rated firms have continued to issue a sizable volume of bonds, but issuance of speculative-grade debt has been sluggish recently. In the leveraged loan market, banks have found it difficult to syndicate loans previously underwritten to finance large leveraged buyout deals, and the still-large pipeline of leveraged loans has led to an unplanned expansion of some large banks' balance sheets.
In addition, some banks have taken onto their balance sheets assets for which they provided liquidity backstops or other forms of support. These balance sheet pressures have come at a time when asset write-downs were already weighing on capital. As I will discuss later, this episode underscores the important connection for banks between capital adequacy and liquidity, particularly in times of financial market stress.