America's top banks excel in annual stress test

CPAP MACHINES ARE COMMONLY USED TO HELP PEOPLE BREATHE REGULARLY AT NIGHT. SEVERAL OF THE NATION'S LARGEST BANKS EXCELLED IN THEIR YEARLY STRESS TEST ACCORDING TO THE FEDERAL ESERVE. THE FED TESTED HOW 23 BANKS WOULD FARE IN AN ECONOMIC DOWNTURN. EACH OF THOSE BANKS HAS MORE THAN $100 BILLION IN ASSETS. THE FED DETERMINED THEY ALL HAD ENOUGH CAPITAL ON HAND TO SURVIVE A RECESSION OR MARKET. THAT

SOUNDS LIKE GOOD NEWS. SHE IS THE PRESIDENT OF BANK ALLIANCE, A NETWORK OF COMMUNITY BANKS. LORI WAS ALSO THE DIRECTOR OF THE TROUBLED ASSET RELIEF PROGRAM OR TARP DURING THE MANA ADMINISTRATION. THANK YOU FOR JOINING US. THE FED IS TESTING THESE BANKS ON WHAT TYPE OF ECONOMIC SHOCKS EXACTLY? >> WELL, IN THIS CASE THEY ARE LOOKING AT A GLOBAL RECESSION SCENARIO. THEY WERE SHOCKING COMMERCIAL REAL

ESTATE. THEY WERE SHOCKING UNEMPLOYMENT. HOME PRICES. THEY WERE DOING REALLY HUGE MOVEMENTS IN THOSE THREE CATEGORIES AMONG OTHERS TO SEE HOW THE BANKS WOULD FARE AND HOW THE CAPITAL WOULD FARE. BANKS ARE HOLDING CAPITAL TO PROTECT AGAINST UNEXPECTED LOSSES AND RISKS. IF SOMETHING REALLY BAD HAPPENS HOW DOES THE BANK DO? CAN THEY CONTINUE TO STAY AFLOAT AND CONTINUE TO LEND AND SERVE CUSTOMERS? AS YOU MENTIONED,

THE ANSWER FOR THESE BANKS WAS A PRETTY RESOUNDING YES. >> GREAT NEWS THE HEADLINE TO HEAR THEY COULD SURVIVE THAT. AS AN EXPERT LIKE YOURSELF I KNOW YOU TOOK A LOOK AT THIS REPORT. DID YOU SEE ANYTHING ELSE THAT STOOD OUT WHEN YOU REALLY TOOK A CLOSE LOOK AT THOSE NUMBERS? >> FIRST OF ALL, THERE WAS THE SENSE THAT SO MANY PEOPLE HAD RELIEF. IT IS

GREAT TO SEE AS WE HAVE BEEN HEARING FOR SOME TIME THAT OUR BANKING SYSTEM FUNDAMENTALS ARE IN GOOD SHAPE. WHAT WAS INTERESTING TO ME IS THERE WAS THIS AMOUNT OF LOSSES WE COULD SEE IN THE SCENARIOS WE DISCUSSED THAT WAS WELL OVER $500 BILLION. THAT IS A HUGE AMOUNT OF LOSS IN A RELATIVELY SMALL CONCENTRATED NUMBER OF BANKS. THE SYSTEM WOULD STILL BE OKAY. THAT REALLY

SHOWS HOW MUCH EXCESS CAPITAL THE BANKS HAVE. THINK TO THE SIZE OF ONE OF THE TARP PROGRAMS. IT WAS THAT CRISIS IN 2008 AND 2009 OF THIS IDEA FOR STRESS TEST CAME OUT OF. THAT WAS WHAT SET US ON THIS PATH. THE WHOLE BANK ORIGINAL CAPITAL PURCHASE PROGRAM WAS JUST OVER 700 BILLION AND NOW WE ARE SAYING BANKS CAN LOSE 550 BILLION AND THE SYSTEM IS

OKAY. I THINK IT SHOWS HOW FAR WE HAVE COME IN TERMS OF THE BANK CAPITALIZATION EVEN IF WE ARE TALKING ABOUT THE LARGEST BANKS. >> AS YOU KNOW, WE ARE TOO MUCH SHY SINCE THE LAST THREE REGIONAL BANKS FAILED. UNDER THE CURRENT RULES, THOSE BANKS WOULD NOT HAVE BEEN SUBJECT TO YEARLY STRESS TESTING, BUT SHOULD THE FED RECONSIDER THOSE RULES? >> I THINK WE HAVE HEARD

A LOT FROM THE FED RECENTLY IN VARIOUS REPORTS AND THEY WANT TO LOOK ABOUT WHETHER IT MAKES SENSE TO EXEMPT SOME BANKS THAT ARE LARGER AND THESE REGIONALS FROM THE ANNUAL STRESS TEST. THOSE RULES WERE CHANGED A FEW YEARS AGO BUT I THINK IT'S IMPORTANT TO POINT OUT THAT EVEN IF BANKS ARE NOT NECESSARILY REQUIRED TO BE PART OF THIS LARGE STRESS TEST SO MANY OF

THEM ARE STILL DOING STRESS TEST ON THEIR OWN. IT IS JUST A PART OF THEIR RISK MANAGEMENT. THAT INCLUDES REGIONAL AND COMMUNITY BANKS OF ALL SIZES SPENDING A LOT OF TIME STRESSING THEIR PORTFOLIOS IN DIFFERENT PARTS OF THEIR BUSINESSES IN DIFFERENT WAYS. THEY WANT TO KNOW HOW THEY WOULD DO. THEY WANT TO MAKE SURE THEY CAN SERVE THE COMMUNITIES. EVEN IF THE REGULATOR MIGHT NOT BE

REQUIRING IT IN A PUBLIC WAY I THINK IT IS FAIR TO ASSUME THAT RESPONSIBLE BANKS OF ALL SIZES ARE CONSTANTLY STRESSING THEIR PORTFOLIOS TO MAKE SURE THEY REMAIN STABLE. >> AL