Federal Reserve Vice Chairman Donald Kohn says conditions in the credit markets are improving. Equities prices have rallied, spreads on high-grade corporate bonds have fallen considerably, and firms have not had trouble raising funds in credit markets. These positive signs are the result of the Fed's efforts to boost liquidity, ability of financial institutions to raise capital, and better than expected economic data.

Despite some positive signs, credit conditions are not optimal. Many investors remain skeptical of credit quality and the securitization market of mortgages has fallen dramatically. Because the market for securitized loans has deteriorated, banks cannot bundle and sell loans and other assets. As credit conditions deteriorate and the risk of default increases, financial institutions have had to de-leverage their balance sheets.

Snapshot asks, are credit markets improving or have we only begun to see a drawn out process of de-leveraging?

Federal Reserve Bank of New York - May You Live in Interesting Times: The Sequel
Don Kohn - May 20th Speech
Financial Times - Fears of Prolonged Credit Crisis Hit Wall Street