Volumes of debt underwriting — he process by which investment bankers raise investment capital from investors — have fallen by more than $1.3 trillion in the US since the credit crisis kicked off last July.

According to an Oppenheimer research note picked up by Dow Jones MarketWatch: “As more than 80% of corporate funding came from the capital markets during 2007, we can’t help but believe that such a massive extraction of liquidity from the market will have a profound impact on the U.S. economy. [...] As bank balance sheets show similar strain to brokers’ own balance sheets, there is little room in the system to ‘pick up the slack’ vis a vis corporate lending.”

Despite the doom and gloom, i-banks have rallied this week.

“Banks have a lot more things to worry about, however,” says John Stepek. “Even if the latest writedowns represent a beginning to the clear-out, we won’t see a return to the days of easy credit for a long, long time. Lehman Brothers’ rights issue was over-subscribed, but it’s not that surprising, given the terms on offer. The convertible preference shares pay a 7.25% dividend

“The problems in the financial world caused by the credit crisis are now firmly entrenched in the ‘real’ economy. Even in the days before credit derivatives became so widespread, a worsening economic environment was always bad news for banks. With so many other dodgy debt instruments linked to corporate defaults and credit card debt out there, we can expect to see more parcels of toxic debt revealing themselves as conditions worsen.”