Excerpted with permission from the publisher, John Wiley& Sons, from Thriving in the New Economy by Lori Ann LaRocco. Copyright(c) 2010 by Lori Ann LaRocco.Since the fall of BearStearns and LehmanBrothers, the term bankhas become a dirty word.The historic $700 billion''financial'' industry bailoutin the fall of 2008acted as the backdropfor well-known CEOs losing their jobs, and banks failing andbeing seized by the Federal Deposit Insurance Corporation(FDIC) as a common Friday occurrence. Fears of ''Is my moneysafe?'' were rampant after Wachovia and Washington Mutualfailed. Then, in order to restore confidence, the FDIC raisedthe limit of deposit insurance on U.S. bank accounts from$100,000 to $250,000 per depositor. But during this turmoil, a part of the industry was tryingto thrive--regional banks. I remember driving in to work inthe fall of 2008 and the winter of 2009 seeing signs such as''Still Strong, Still Lending'' hanging above their doors. Oneof the regional bank chief executive officers attempting tolead through this new economy is BB&T Corporation ( BBT - Get Report) CEOKelly King.
So why did I choose to include Kelly's -- and BB&T's -- story in my book, rather than other regional banks? It was ano-brainer; BB&T has adequate capital on its balance sheetfor acquisitions, meaning it is in good health and poised togrow during this time. The bank was ''asked'' to acceptTroubled Asset Relief Program (TARP) money along withthe country's other 18 largest banks and underwent thestress test. It was one of only nine that ''passed'' the testand therefore was not required to raise additional capital.After the stress test results were announced, BB&T said itwould raise $1.5 billion, along with a large dividend cut andexisting cash, to pay off the $3.1 billion it received in TARPfunding. The bank was cleared by the government to payback its TARP money and exited the Troubled Asset ReliefProgram on June 17, 2009 when it paid the U.S. Treasurywith interest. Nearly two months later, Montgomery, Alabama-basedColonial Bank, one of BB&T's rivals, failed and was seized by the FDIC on August 14. BB&T then purchased Colonial'sloans, deposits, and most of its assets from the government.At that time, Colonial Bank was the sixth-largestbank failure in U.S. history. This acquisition gave BB&Tfurther access to the Florida and Alabama markets, whichis part of its growth strategy. The structure of the deal alsoshielded BB&T from potential losses when the FDIC agreedto share losses with BB&T on $14 billion of the $22 billionin assets included in this deal. Although initially Kelly was shocked by the events at BearStearns and Lehman Brothers, he is optimistic on the futureof banking.
* Author's note: Residential Mortgage Backed Securities are securities with coming cash flowfrom residential debt. RMBS are a type of mortgage backed security.
All of this turmoil left the market feeling very uneasy. We savedBear Stearns, let Lehman Brothers fail, and then saved AIG. So howbig is this problem and exactly how are we dealing with it? Themarket certainly didn't understand why we saved two and let onefail. It didn't understand the pervasiveness of the problem. All of thatcontributed significantly to the nervousness in the market. The crescendoof panic that started setting in gave way to an enormousliquidity scare for the next year or so.
Because of that heritage, we've always believed in being reallyconservative and being prepared for any major crisis. And that'sexactly what has occurred since the problems in our industry beganto unravel in 2008. When the worst of the liquidity crisis washappening, nobody would lend money to anybody. In fact, therewere organizations bringing money to us at 0 percent interest. We'dtell them we didn't need the money, and they'd reply, ''That's fine;we just want to put it in your bank.'' So other organizations viewed us as a safe haven throughout theordeal, which was of course rewarding for us. However, I continuedto worry about the financial system as a whole. Our financialsystem is based on faith, and when the American public loses faithin the financial system and the government's ability to support it,it could lead to an absolute collapse across the industry. Lori Ann LaRocco is senior talent producer at CNBC and one of the producers of the CNBC show "Squawk Box."