Rob Givens of Mazuma Credit Union reports his concerns with trends in credit lending. Rob Markey of Blue Ridge Bank and Barry Sullivan of US Bank observe.

Tom Cohen of GMAC Collateral Mortgage joked that his "biggest challenge is Tom Turner here with Collateral Mortgage." More seriously, he saw terrorism insurance "on virtually all of our commercial properties" as the most pressing of all new issues. (GMAC happens to be the mortgage banker for the World Trade Center.)

Crosby Kemper asked the entire group if Sept. 11 and the potential war with Iraq had an impact on their businesses, and the answer was generally yes. Cohen elaborated that this newly minted terrorism insurance "has been a nightmare for a lot of folks out there" as it affects just about all commercial properties. As a result, at least for many businesses, "the cost of insurance has risen dramatically."

Kemper related that the carrier for one of the city's more prominent high-rise apartment complexes refused to renew because of the threat of terrorism. The complex took three or four months to find a new carrier. Turner argued that "the further we get away from 9-11, the less effect terrorism insurance will have cost-wise." But, he cautioned, "It is not something that is going to disappear."

Bob Buckner contended that Sept. 11 and ensuing events have "caused much emotional distress," and as a result, "the confidence has just about gone out of the economy." Gregg Motley agreed that there was "more caution on part of entrepreneurs to invest." He added, however, that "we don't know all the ramifications" that follow on an event like this, specifically in the regulatory process. He cited as an example, the so-called Patriot Act.

For the record, when Congress passed the USA Patriot Act in October 2001, it came with a host of new anti-laundering provisions. These include new definitions of what types of businesses are considered financial institutions, as well as increases in the responsibility for transactions with correspondent banks.

Motley claimed that the act's "extra bells and whistles" could seriously inconvenience the customers. Givens added that its "operational costs could slow us down pretty heavily."

Kemper wondered whether the Patriot Act "is just the Know Your Customer Act through the back door of the war on terrorism." That measure mandated many of the same governmental controls a few years back, ostensibly to deal with drug trafficking. But it engendered, said Kemper, a huge reaction, including some two million comments, virtually all of them negative.

"They haven't really decided what the rules are," added Kemper regarding the Patriot Act. "We're trying to figure out exactly how we're going to know what's going on with the correspondent banks." Joked Givens, "We appreciate you taking the trouble to do that."

Jon Baum reports of 4% interest rate municipal bonds and the challenges investors have in securing more favorable returns.

When the initial question was raised as to the challenges financial institutions faced, those who deal most intensively in capital markets quickly acknowledged the impact of this season's seemingly endless financial scandals.

Mike Miner of A.G. Edwards commented that there was a "crisis in confidence among equity investors in the United States." It's a result of their skepticism about the validity of analysts' statements and the exploitation of certain corporations by their CEOs. George K. Baum's Jon Baum agreed that in the capital markets, the biggest challenge "is the lack of confidence by investors in corporate leaders."

Given these widely publicized misadventures, Renee Charpie of Linsco Private Ledger commented that her company's primary challenge is working with people to keep them in the market. She also finds it necessary to counsel her clients toward a more conservative market position. Kemper agreed that "the average consumer doesn't believe the numbers anymore." One result of this is that they "are looking for safe havens," even those like savings accounts that compensate only in security what they lack in interest.

Baum made a similar point about the bond market, calling it an "unusual period of time." If, as a rule of thumb, investors in municipal bonds look for 5% return at a minimum, they are now purchasing issues in the low 4s--and are eager to do so. "There are no other options out there," said Baum. Miner added that even if a 10-year municipal bond yields only 3-1/2%, "customers prefer that to losing another 20% in the stock market."

Charpie contended that round-the-clock scandal coverage has had an impact on her customer base. "You really have to talk to them," she noted, "because they truly do worry that everyone is a crook."

One of the political consequences of this coverage was the hasty passage of the Sarbanes Oxley Act (see sidebar, page 73). Passed in July, the act will likely result in the most significant changes in federal securities regulation since the enactment of the Securities Exchange Act of 1934.

Baum predicts Sarbanes-Oxley will have a significant negative impact on capital markets. The question was raised, in fact, whether the regulations will have more negative effect on the stock market than the scandals they are designed to remedy. Dealing with the new regs, Baum admitted, would require "a lot of money, a lot of extra expenditures." Kemper admitted he had a "lot more sympathy" for his colleagues in the capital markets since banks are now facing a good deal more scrutiny from the SEC.