As large domestic banks feel the pinch of the credit crunch, regional and international banks are stepping into the void. In few places is this more evident than in the municipal market, where these banks have moved to provide liquidity and credit enhancement to issuers feeling left out in the cold.

The issue got more visible last week, when State Street Bank withdrew a letter of credit promised to the Massachusetts Turnpike Authority. The bank told MTA officials that it had withdrawn the LOC based on market volatility and credit constraints.

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