Here are more encouraging signs that the economic recovery continues to gain strength.

Credit quality continues to improve and some indicators stand at two-year highs.

According to Standard & Poor's, the US speculative-grade default rate fell to 3.35 percent in mid-December, down from a peak of 11.4 percent hit in November 2009. In the US, 53 issuers defaulted through November, compared with 185 at the same time in 2009.

The contraction in lending to small companies is a result of deteriorating revenues, not a slowdown in demand.

That, at least, is the conclusion of a new report from the Federal Reserve Bank of New York. It studied 426 small businesses last summer and found that demand for loans actually has increased, but banks have been turning more companies down. And that, of course, flies in the face of other research that shows the lack of lending is due to fewer businesses seeking loans.

Here is further proof the economy in general is improving.

Despite stubbornly high unemployment, Standard & Poor's reported a decline in monthly default rates for all credit lines.

Corporate borrowers will likely continue to enjoy record low interest rates in the next few months as the Federal Reserve keeps selling Treasuries and the outstanding level of corporate bonds goes down.

Obviously, that's if the US economy avoids a double-dip recession.

The six largest banks in the UK will set up a task force to evaluate the business lending landscape in the UK and look at ways to increase credit to UK companies. However, at first glace it appears this is just the next step in the political dance that the UK coalition government and the banking community have been sashaying to for quite some time.

First, the government says small businesses--the fuel for the furnace of recovery--need access to more credit in order to grow; then the banks say we have no money to lend because you are making us hold more in reserve; then--surprise, surprise--the banks all return to profit; then the government says okay now lend to small business; then the banks say they don’t want our money; then the government says okay, really guys, you must lend more to small business; then the banks say okay we will set up a task force to look at it….and the dance goes on.

The recently enacted financial reform bill addresses most aspects of the financial services industry. But there are still two major areas which still need the attention of lawmakers--government-sponsored enterprises (GSEs) and covered bonds. 

Of the two, the most needed reform is that of GSEs, as Hank Paulson brought up in an op-ed to the Washington Post last week. 

After fits and starts since the European sovereign debt began in April, the primary bond market finally reopened this week, and companies are taking full advantage of it.

Driven by better-than-expected earnings, a speculative-grade default rate that continues to fall and results of European banks stress tests that seem to have contented many investors, companies - both investment grade and high yield -- are jumping at the opportunity to raise fresh debt before the usual late-summer lull in investor interest sets in.

The main three credit ratings agencies have told Wall Street in recent weeks that underwriters won't be able to use their credit ratings in documents selling asset-backed securities for fear of being sued.

While it has already placed the ABS market on hold and has securitization professionals up in arms, there are several ways for banks to continue to sell ABS going forward.

Federal Reserve Chairman Ben Bernanke asked lenders to ease credit to small businesses earlier this week, but the situation isn't likely to change anytime soon.

With stricter lending standards, small community banks have stopped lending to small companies. Part of the problem is a lack of demand from solid businesses. Most want to save their cash and preserve their credit while there's still uncertainty surrounding the economic recovery.

Not every company is sitting on its hands until the economy improves. Insurance giant Aon is taking on a significant amount of short-term debt to acquire Hewitt Consulting for $4.9 billion and spend on its brand to exploit new opportunities.

The Hewitt deal will help Aon get a firm foothold in human resources and benefits outsourcing, significantly increasing Aon's market share in this area and positioning the company to take on rival insurance broker and consulting big Marsh and McLennan. The move also gives Aon a more balanced mix of insurance brokerage and consulting revenue.