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Ever since the stock-market bubble burst five years ago and the cost of equity soared, the availability of capital has become a greater concern for corporate-finance executives. Luckily, debt has plugged the gap left by equity's decline, thanks to two essential developments. One is the near-constant innovation of the banking industry. The other is the Federal Reserve's vigorous postbubble efforts to keep interest rates low. These developments have now reached a critical juncture.
The Fed has changed course to keep the economy from overheating, and with fears of inflation looming nonetheless, uncertainty over the central bank's next moves has fueled concern that the credit conditions that have prevailed since 2001 will soon turn much tougher. There's some evidence that that's already occurring, as "A Change of Season" explains. The good news is that most CFOs and treasurers have time and room to maneuver to soften any such crunch.
Meanwhile, the innovations that have helped raise capital may also increase the risk of conflicts of interest through new products like credit derivatives and new relationships with hedge funds and other customers. In an era of deregulation, as "Are Your Secrets Safe?" points out, the question of how well such conflicts are managed becomes an issue of rising importance.
Indeed, underwriting itself faces a growing challenge, as pressure mounts to undo the oligopoly of the investment banks. That's a development finance executives seem to favor, but there may be less to it than meets the eye, as "The Big Get Bigger" notes.
Even so, in the years ahead it is highly unlikely that capital will come from the same sources as in the recent past, or at the same cost. All in all, our report, which also includes a CFOsurvey of 261 finance executives, suggests that significant change may be afoot.