The value of the assets of many financial institutions has fallen substantially. A fall in the market value of assets implies an equal decline in the market value of liabilities, with the big hits taken by equity and lower priority debt. The fall in the value of equity can cause a financial institution to violate its legal equity capital requirement. The first recourse for a financial institution that needs equity capital is the private market. But raising enough new private equity to meet its capital requirement may not be possible because of a "debt overhang" problem. Here's how it works.
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