CFO.com: Fear Factors

Interesting comments carried on CFO.com from six banking executives on recent credit market turmoil. Some snippets, italics added by us:

What about the state of the financial markets keeps you awake at night?

Douglas S. Roberts [Channel Capital Research]: …The credit crisis is being addressed by the [Federal Reserve], the European Central Bank, and the Bank of Japan. The Bank of England and the Chinese Central Bank are also probably involved. If this coordination falls apart, you could have a situation in which a foreign central bank is tightening and the Fed is loosening. Because of the global nature of the capital markets, the central banks operating in opposite directions could create a situation in which the effectiveness of Fed action would be negated.

What are the biggest risks in the U.S. financial markets?

Don Wilson [Amcore Financial]: This is fundamentally a long-overdue repricing of risk across the debt and financing markets — one that is unfortunately happening in a fairly sudden manner…companies need to pay particular attention to their sources of liquidity and uses of available collateral. Businesses and transactions that may have been marginally viable in the recent past may no longer be viable when the risks they represent are more appropriately reflected in their cost of capital.

Are there other risks in the financial markets that might be lying in wait?

Don Wilson: While much of the media has focused on the buzzword of subprime in relation to the retail and consumer markets, there are similar issues in the corporate arena, in which the separation of high-quality debt and mezzanine and lower debt levels has become increasingly blurred. If markets overreact and go from underpricing risk to overpricing risk, there could be broader economic results, as even quality activity gets constrained by excessively expensive cost of capital.

When the dust settles, will the markets and banks be in better shape than before?

Art Hogan III [Jefferies & Co]: Unfortunately, we have to feel a lot of pain before we make the system better…. [Up until now] there has been an outsized reward for increased risk-taking, which worked fine. But as soon as we had volatility, the outsized reward for taking risk turned into outsized punishment.

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