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01.1 BASICS EXAM CONCEPTS & GUIDELINES > Basic > Flashcards

Basic Flashcards

1
Q

1.1 BASIC EXAM CONCEPTS & GUIDELINES

How does Sections 10(b) and (c) of the FDI Act empower FDIC examiners? (TIEE)

A
  • Empower examiners to make a thorough examination of a bank’s affairs
  • Examiners should document all significant examination obstacles and the regional office’s resolution of the situation
  • If faced with serious impediments to an examination, including uncooperative executive officers, or restricted access to bank employees or records, examiners should contact the RO
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2
Q

1.1 BASIC EXAM CONCEPTS & GUIDELINES

What is the purpose of examinations?

A
  • Public Confidence - Maintain public confidence in integrity of banking system
  • Laws & Regulations - Determining adherence to laws and regulations
  • Protecting DIF - Protecting the financial integrity of the deposit insurance fund
  • Understand Problems - Supply an understanding of the nature, relative seriousness and cause of a bank’s problems
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3
Q

1.1 BASIC EXAM CONCEPTS & GUIDELINES

What does “FFIEC” represent and who are the members?

A
  • Federal Financial Institutions Examination Council
    • FDIC,
    • FRB,
    • OCC,
    • NCUA,
    • CFPB,
    • State Liaison Committee (Composed of five representatives of state supervisory agencies)
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4
Q

1.1 BASIC EXAM CONCEPTS & GUIDELINES

What does UFIRS represent, when was it adopted, and by whom?

A

The Uniform Financial Institutions Rating System (UFIRS) was adopted by the Federal Financial Institutions Examination Council (FFIEC) on November 13, 1979, and updated in December 1996.

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5
Q

1.1 BASIC EXAM CONCEPTS & GUIDELINES

What is the purpose of UFIRS and how has it evolved?

A
  • UFIRS proved to be an effective supervisory tool for evaluating financial institutions on a uniform basis and for identifying institutions requiring special attention;
  • Revisions to UFIRS include the addition of a sixth component addressing SMR, explicit references to the quality of risk management processes with the management component, and risk identification elements within the composite and component rating descriptions
  • Assists regulatory agencies in fulfilling their mission of maintaining stability and public confidence in the nations financial system
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6
Q

1.1 BASIC EXAM CONCEPTS & GUIDELINES

Can the Board and management disclose the examination ratings to all bank employees? Explain.

A

Banks cannot, except in very limited circumstances, disclose the ratings or any part of a report of examination (ROE) without the prior written consent of their primary regulator.

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7
Q

1.1 BASIC EXAM CONCEPTS & GUIDELINES

What is the purpose of an “Examination Letter?

A
  • Clearly communicated the FDIC’s expectations for troubled institutions
  • The Examination Letter should:
    • Be delivered by FDIC FS to executive officers/presidents during examination exit meetings for banks newly-assigned a CAMELS composite 3 rating or worse;
    • Letters should notify management the bank’s composite rating was tentatively downgraded and conveying expectations that management stabilize the bank’s risk profile and strengthen the financial condition;
    • Notify management that actions taken to materially expand the bank’s balance sheet or risk profile are inconsistent with supervisory expectations;
    • Also inform management they are required to obtain a non-objection from their regional director before engaging in any transactions that would materially change the institution’s balance sheet composition, such as significantly increasing total assets or volatile funding sources
  • Immediate corrective measures, including the issuance of a temporary order requiring an institution to cease and desist, may be appropriate in higher-risk situations, such as:
    • Fails to follow the instructions in the letter;
    • Does not acknowledge, or is slow to address, the institution’s problems;
    • Takes actions that compound the institution’s problems;
    • Increases the use of volatile funding sources;
    • Extends credit in an unsafe and unsound manner;
    • Pays excessive dividends, salaries or bonuses; or
    • Makes unjustified payments to institution-affiliated parties.
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8
Q

1.1 BASIC EXAM CONCEPTS & GUIDELINES

What does SCOR stand for?

A

Statistical Camels Off-site Rating

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9
Q

1.1 BASIC EXAM CONCEPTS & GUIDELINES

When can the FDIC alternate with the State?

A
  • 1 or 2 rated;
  • 3 rated and stable/improving if rating is confirmed by SCOR
  • No adverse trends noted from other information
  • Not allowed on the 1st De Novo Exam, Must be Joint Exam
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10
Q

1.1 BASIC EXAM CONCEPTS & GUIDELINES

How are exam intervals calculated?

A

Time between the end date of an exam and the start of the next exam (End of exam is the earlier of day ROE submitted or 60 days after start date)

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11
Q

1.1 BASIC EXAM CONCEPTS & GUIDELINES

Are specialty exams covered by 10(d)?

A
  • No, specialty examinations are governed by internal RMS policy
  • Reasonable adjustments include extending the examination cycle for 1 and 2 rated specialty areas
  • Although not permitted by statute for safety and soundness examinations
  • Internal policy allows regional directors to also extend the examination cycle for 3 rated specialty areas
  • Specialty areas rated 4 or 5 should normally not be extended beyond a one-year interval.
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12
Q

1.1 BASIC EXAM CONCEPTS & GUIDELINES

What is the length of time between the start of a new exam and end of a prior exam?

A

Earlier of the date the Report was submitted for review or 60 days from the examination start date.

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13
Q

1.1 BASIC EXAM CONCEPTS & GUIDELINES

What is the frequency of examinations for a newly chartered & insured institution?

A
  • Visitation within first 6 months of operation
  • Full scope within 12 months
  • Full scope exam must be conducted annually for the first 7 years
    • Note: If subsidiary of a multi-BHC, in satisfactory condition, normal exam cycle should be followed.
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14
Q

1.1 BASIC EXAM CONCEPTS & GUIDELINES

What is the frequency of examinations for banks converting to insured state nonmember status (from national charter or state member)?

A
  • Full scope within 12 months prior to conversion
  • Note: Limited/visitation considered within 3 months of conversion
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15
Q

1.1 BASIC EXAM CONCEPTS & GUIDELINES

What is the frequency of examinations for noninsured banks converting to insured status?

A
  • Full scope within 12 months of the FDIC entrance exam
  • Note: Limited/visitation considered within 3 months of conversion
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16
Q

1.1 BASIC EXAM CONCEPTS & GUIDELINES

What is the frequency of examinations for a change of ownership control?

A
  • Limited scope within 6 months (if management unknown)
  • Full scope within 12 months (if management unknown)
    • Note: If FDIC’s knowledge of management & financial performance reflects satisfactorily then standard exam intervals apply
17
Q

1.1 BASIC EXAM CONCEPTS & GUIDELINES

Limited scope & visitations exams are used for? (Hint: MADDIIC)

A
  • Monitor compliance with a corrective program
  • Address other situations• Determine changes in a banks risk profile
  • Determine progress in correcting deficiencies
  • Investigate adverse or unusual situations
  • Investigative or supervisory tool
  • Comply with SCOR follow-up requirements
18
Q

1.1 BASIC EXAM CONCEPTS & GUIDELINES

What are other uses of a limited scope examination? (NCCF)

A
  • New charter• Conversion to nonmember bank
  • Change in ownership - if ownership is unknown
  • FDIC assumption
19
Q

1.1 BASIC EXAM CONCEPTS & GUIDELINES

When can examinations of nonbank affiliates be conducted?

A

Examinations of nonbank affiliates may be conducted at the discretion of the regional director, but independent examinations of holding companies supervised by the Federal Reserve may not be conducted without prior approval of the Washington Office.

20
Q

1.1 BASIC EXAM CONCEPTS & GUIDELINES

When do you coordinate BHC inspections and subsidiary examinations?

A

When particular emphasis for coordinating examinations should be placed on banking organizations with over $10 billion in consolidated assets and those banking organizations (generally with assets in excess of $1 billion) that exhibit financial weaknesses.

21
Q

1.1 BASIC EXAM CONCEPTS & GUIDELINES

When is moral suasion and informal agreements normally sufficient to use in identifying risk levels in an institution?

A

When unacceptable risk levels or risk management practices are identified early, but formal action must be considered, even when an institution is rated 1 or 2, if circumstances warrant.

22
Q

1.1 BASIC EXAM CONCEPTS & GUIDELINES

What are the grounds that the FDIC will rely on State findings for alternate examinations? (CDMA)

A
  • Completeness – an independent determination can be made about the bank’s condition based on ROE
  • Documentation – supports the assessments and findings of the ROE
  • Meeting Objectives – the respective state’s ability to meet examination objectives
  • Arrangements – adequacy of formal / informal arrangement or working agreement between a state banking department and the FDIC
23
Q

1.1 BASIC EXAM CONCEPTS & GUIDELINES

How much notice should be given to banks before exams?

A

Generally 2 weeks; however, it can be shortened due to scheduling or bank problems/issues

24
Q

1.1 BASIC EXAM CONCEPTS & GUIDELINES

When do you have Meetings with Directors?

A
  • Composite “4” or “5” rating - EIC and RD (or designee)
  • Composite “3” - EIC
  • Composite “1” or “2” - EIC if:
    • 36 months or more have elapsed since the last meeting
    • Management component is “3”, “4”, “5”
    • Any component is “4” or “5”
    • Any two components are “3”, “4”, “5”
    • Note: The Board does not have to constitute a quorum.
25
Q

1.1 BASIC EXAM CONCEPTS & GUIDELINES

Management should be reminded of what during the meetings?

A
  • That the report is confidential,
  • It remains the property of the FDIC, and
  • The utmost care should be exercised in its reproduction and distribution.
26
Q

1.1 BASIC EXAM CONCEPTS & GUIDELINES

What is an agricultural bank?

A

Located in an area primarily dependent on agriculture.

27
Q

1.1 BASIC EXAM CONCEPTS & GUIDELINES

How long should the Officer’s Questionnaire be retained?

A
  • Minimum 5 years from the examination start
  • Indefinitely when irregularities are discovered or suspected, especially if the signed questionnaire may provide evidence of these irregularities.
28
Q

1.1 BASIC EXAM CONCEPTS & GUIDELINES

How long should the BSA examination work-papers be retained for and what are the filing requirements?

A

BSA work-papers should be maintained separately from the work-papers of the risk management examination and must be retained for five years.

29
Q

1.1 BASIC EXAM CONCEPTS & GUIDELINES

When do you extend work-papers beyond one examination cycle?

A
  • Banks with existing or pending administrative action
  • Special documents relating to past insider abuse
  • Criminal referral letters
  • Documents are subject of previous criminal referral letters
  • If a composite 3 or worse, should be kept until the bank returns to a satisfactory condition
30
Q

1.1 BASIC EXAM CONCEPTS & GUIDELINES

What is the composite 1 rating?

A
  • Sound in every respect and generally have components rated 1 or 2;
  • Any weaknesses are minor and can be handled in a routine manner by the board and management;
  • Most capable of withstanding the vagaries of business conditions and are resistant to outside influences such as economic instability in their trade area;
  • Substantial compliance with laws and regulations;
  • Exhibit the strongest performance and risk management practices relative to the institution’s size, complexity, and risk profile, and give no cause for supervisory concern.
31
Q

1.1 BASIC EXAM CONCEPTS & GUIDELINES

What is the composite 2 rating?

A
  • Fundamentally sound;
  • Generally no component rating should be more severe than 3;
  • Only moderate weaknesses are present and are well within the board and management’s capabilities and willingness to correct;
  • Stable and are capable of withstanding business fluctuations;
  • Substantial compliance with laws and regulations;
  • Overall risk management practices are satisfactory relative to the institution’s size, complexity, and risk profile;
  • No material supervisory concerns and, as a result, the supervisory response is informal and limited.
32
Q

1.1 BASIC EXAM CONCEPTS & GUIDELINES.

What is the composite 3 rating?

A
  • Exhibit some degree of supervisory concern in one or more of the component areas;
  • Exhibit a combination of weaknesses that may range from moderate to severe;
  • Magnitude of the deficiencies generally will not cause a component to be rated more severely than 4;
  • Management may lack the ability or willingness to effectively address weaknesses within appropriate time frames;
  • Generally are less capable of withstanding business fluctuations and are more vulnerable to outside influences than those institutions rated a composite 1 or 2;
  • May be in significant noncompliance with laws and regulations;
  • Risk management practices may be less than satisfactory relative to the institution’s size, complexity, and risk profile;
  • Require more than normal supervision, which may include formal or informal enforcement actions;
  • Given the overall strength and financial capacity, failure appears unlikely.
33
Q

1.1 BASIC EXAM CONCEPTS & GUIDELINES

What is the composite 4 rating?

A
  • Generally exhibit unsafe and unsound practices or conditions;
  • Serious financial or managerial deficiencies exist that result in unsatisfactory performance;
  • Problems range from severe to critically deficient;
  • Weaknesses and problems are not being satisfactorily addressed or resolved by the board and management;
  • Generally are not capable of withstanding business fluctuations;
  • May be in significant noncompliance with laws and regulations;
  • Risk management practices are generally unacceptable relative to the institution’s size, complexity, and risk profile;
  • Close supervisory attention is required, which means, in most cases, formal enforcement action is necessary to address the problems;
  • Bank poses a risk to the deposit insurance fund;
  • Failure is a distinct possibility if the problems and weaknesses are not satisfactorily addressed and resolved.
34
Q

1.1 BASIC EXAM CONCEPTS & GUIDELINES

What is the composite 5 rating?

A
  • Exhibit extremely unsafe and unsound practices or conditions;
  • Exhibit a critically deficient performance;
  • Often contain inadequate risk management practices relative to the institution’s size, complexity, and risk profile;
  • Are of the greatest supervisory concern;
  • Volume and severity of problems are beyond management’s ability or willingness to control or correct;
  • Immediate outside financial or other assistance is needed in order for the financial institution to be viable;
  • Ongoing supervisory attention is necessary
  • Poses a significant risk to the deposit insurance fund and failure is highly probable.
35
Q

1.1 BASIC EXAM CONCEPTS & GUIDELINES

The examination interval can be extended to 18 months if a bank satisfies ALL of specified criteria, what is the criteria?

A
  • TA < $500MM
  • Well Capitalized
  • Well Managed (M rated 1 or 2 at LX exam)
  • Not subject to formal enforcement order
  • No person acquired control of the bank during the preceding 12 month period
36
Q

1.1 BASIC EXAM CONCEPTS & GUIDELINES

What is the exam frequency for banks that have received FDIC Assistance or have been involved in a Purchase & Assumption or Deposit Transfer Transaction?

A
  • If acquiring banks has TA > 10x amount of acquired deposits, Composite 1 or 2, and acceptable SCOR DIFF score, - no special /exam or visit required;
  • Otherwise, visit within 30 days of transaction to determine how FDIC funds are used & whether bank is in accordance with agreement;
  • Second visit must be within 6 months of the transaction;
  • Full-scope exam within 12 months of transaction

01.1 BASICS EXAM CONCEPTS & GUIDELINES (1 decks)

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