FDIC RULES AND REGULATIONS Flashcards
1
Q
FDIC PART 303
303.2) What is the criteria that institutions must meet to be eligible for Expedited Application Processing? (5
A
- Composite 1 or 2 rating at most recent federal or state exam
- Compliance 1 or 2 rating at most recent Federal exam
- Satisfactory CRA or better rating from primary regulatory at most recent exam
- Well-capitalized per PCA guidelines
- Not subject to C&D, consent order, PCA directive, written agreement, MOU, or other written agreement
2
Q
FDIC PART 303
Applications are needed for?
A
• Deposit Insurance;
• Establish and relocate a Branch or Move Main Office;
• Merger transactions;
• Change in bank control;
• Change of Directors or Senior executive officers;
• Activities of Insured State Banks & Savings Assoc.;
• Mutual-to-Stock Conversions;
• International banking;
• PCA;
• Section 19 - Consent to service of persons convicted of certain criminal offenses;
• Other filings:
- Brokered deposit waivers;
- Consent to exercise trust powers;
- Retirement of Capital
3
Q
FDIC PART 303
What is the minimum coverage for a new institution?
A
$1MM; however, if less than $1MM, bank employee dishonesty bond should be $1MM
4
Q
FDIC PART 303
What 4 policies are required for an approval of a new institution (Hint: FILL)?
A
- Funds Management Policy
- Investment Policy
- Liquidity Policy
- Loan Policy
5
Q
FDIC PART 303
What 7 factors are considered for Applications by Proposed or Newly Organized Institutions? Section 6 of the FDI Act
A
- Financial history & condition of the bank
- Adequacy of the bank’s capital structure
- Future earning prospects
- General character & fitness of bank management – MOST IMPORTANT FACTOR
- Risk presented by the bank to the DIF
- Convenience and needs of the community to be s by the bank
- Whether the bank’s corporate powers are consistent with the purposes of the FDI Act
6
Q
FDIC PART 303.82
Any person seeking to acquire control (25% or more) of any insured bank or holding company, is required to provide __ days prior written notice to the appropriate agency and contain all the information required by Section 7(j)(6) of the FDI Act
A
60 days
7
Q
FDIC PART 303
What are 7 Factors for disapproval for change of control?
A
- Competition – substantially lessen within any section of the country or otherwise be in restraint of trade
- Competence – (experience, integrity) of new owner
- Deposit insurance fund – risk exposure
- Experience or integrity - of any acquirer
- Financial condition - of the acquiring party
- Failure to furnish all information required by FDIC, or
- Monopoly – change would result in a monopoly
8
Q
FDIC PART 303
What transactions require after-the-fact notice?
A
Those resulting in a rebuttable presumption of control MOEP 12.1-16 (Change in Control Bank Act)
9
Q
FDIC PART 303
At what percentage of financed stock should an application be denied?
A
75% for an individual. 50% for a group.
10
Q
FDIC PART 303
What is the minimum capital to start a new bank?
A
$2MM after start-up expenses
11
Q
FDIC PART 303
When must fees to insiders and their related interests be disclosed (new bank)?
A
If they exceed $5M
12
Q
FDIC PART 303
What is the minimum number of directors for a new bank?
A
5
13
Q
FDIC PART 303.12
When is a written notice of change required, at least 30 days prior to adding or replacing any member of the board, employing any person as a senior executive officer of the bank, or changing the responsibilities of any senior executive officer so that the person would assume a different senior executive officer position?
A
- Troubled condition
- Not in compliance with all minimum capital requirements applicable as determined on the basis of the most recent Call Report or ROE;
- Determination by the FDIC; in connection with its review of a CRP required under section 38(e)(2) of the FDI Act; or otherwise, that such a notice is appropriate
14
Q
FDIC PART 303.243
What is included in brokered deposit waivers?
A
- Period time period for which the waiver is requested;
- Policy governing the use of brokered deposits in overall funding and liquidity mgmt program;
- Volume, rates, and maturities of brokered deposits currently held, anticipated, internal limits on terms, solicitation and use during the waiver period requested;
- How brokered deposits are costed and compared to alternative funding, used in lending and investments activities, detail of growth plans;
- Solicitation procedures and practices used to solicit brokered deposits, including principal sources;
- MIS overseeing the solicitation, acceptance, and use of brokered deposits;
- Recent consolidated financials w/ balance sheet & Income Statement
- Reasons why its acceptance, renewal, or rollover would pose no undue risk
15
Q
FDIC PART 303
What is Part 303?
A
Filing Procedures
16
Q
FDIC PART 304
(304.1) What is the purpose of Part 304?
A
Part 304 informs the public where it may obtain forms and report instructions, applications and other submittals used by the FDIC.
17
Q
FDIC PART 304
What is Part 304?
A
Forms, Instructions and Reports
18
Q
FDIC PART 309.1
Where does the FDIC publish information for the guidance of the public?
A
Federal Register
19
Q
FDIC PART 309.6
Who is permitted to receive exempt records?
A
- Directors
- Executive officers
- Employees
- Agents of the Corporation
- State banking agencies
- Federal financial institutions supervisory and certain other agencies
- Prosecuting, or investigative agencies or authorities
- Servicers or serviced institutions
- Parent holding company
- Principal shareholder (own in excess of 50% of voting stock)
20
Q
FDIC PART 309
What is Part 309?
A
Disclosure of Information.
21
Q
FDIC PART 311
(Part 311.3) Are meetings of the FDIC’s Board of Directors open or closed?
A
Open
22
Q
FDIC PART 311
(Part 311.5) When can the meetings be closed?
A
- Majority of the entire Board vote to close the meeting
- The Corporation will make public announcement at least seven days before the meeting of the time, place, and subject matter of the meeting, whether it is to be open or closed to the public, and the name and telephone number of the official designated by the Corporation to respond to requests for information about the meeting.
23
Q
FDIC PART 311
What is Part 311?
A
Rules Governing Public Observation of Meetings of the Corporation’s Board of Governors (implements the policy Government in the Sunshine Act)
24
Q
FDIC PART 323
(Part 323.3) What transactions are exempt from Part 323?
A
• Amount is $250,000 or less;
• Lien on RE is taken as collateral in an abundance of caution;
• Not secured by RE;
• Lien on RE is taken for purposes other than the real estate’s value;
• Business loan that:
> value of $1MM or less AND
. > repayment is not dependent on sale of, rental income derived from RE;
• Lease of RE - entered into, unless economically equivalent to purchase or sale of RE
• Existing extension of credit, provided that:
> No new monies advanced other than reasonable closing costs; or
> No obvious and material change in market conditions or physical aspects of property that threatens the adequacy of the institution’s real estate collateral protection after the transaction, even with the advancement of new monies
• Involves the purchase, sale, investment in, exchange of, or extension of credit secured by, a loan or interest in a loan, pooled loans, or interests in real property, including mortgaged-backed securities, and each loan or interest in a loan, pooled loan, or real property interest met FDIC regulatory requirements for appraisals at the time of origination;
• Wholly or partially insured or guaranteed by US government agency or sponsored agency;
• The transaction either:
> Qualifies for sale to a US government agency or sponsored agency; or
> Involves a residential RE transaction in which the appraisal conforms to the Federal National Mortgage Association or Federal Home Loan Mortgage Corporation appraisal standards applicable to that category of real estate;
• Regulated institution is acting in a fiduciary capacity and is not required to obtain an appraisal under other law; or
• FDIC determines that the services of an appraiser are not necessary in order to protect federal financial and public policy interests in real estate-related financial transactions or to protect the safety and soundness of the institution.
25
FDIC PART 323
| Part 323.4) What are the 5 minimum appraisal standards? (SWAMC
* State licensed or certified appraisers
* Written and contain sufficient information and analysis to support the institutions decision
* Analyze and report appropriate deductions and discounts for proposed construction, renovation, partially leased buildings, non-market least terms, and tract dev. with unsold units;
* Market Value basis by definition;
* Conform to USPAP standards
26
FDIC PART 323
| What are the three types of appraisal reports (SSR)?
* Self-Contained - This is a full report and provides the most detail
* Summary - Presents information in a condensed manner
* Restricted Report - Capsulated report with supporting details in appraisers files (usually not appropriate)
27
FDIC PART 323
| (Part 323.3) What is the difference between a state certified appraiser and a state licensed appraiser?
* All transactions of $1,000M or more;
* Nonresidential transactions of $250M or more, other than those involving appraisals of 1-4 family residential properties;
* Complex residential transactions of $250M or more
28
FDIC PART 323
| What are the three valuation approaches (RM Manual)?
* Cost Approach - reproduction cost of building and improvements, less estimated depreciation, plus land value (best approach to value construction loans)
* Market Data or Direct Sales Comparison Approach - examines the price of similar properties that have sold in the local market, estimating value based on comparable properties selling price (best approach to value owner occupied residential property)
* Income Approach - Discounted value of future net operating income, including any reversion value, or capitalization of all future income streams after occupancy is achieved (best approach to value income producing properties).
29
FDIC PART 323
| What is Part 323?
Appraisals
30
FDIC PART 325
| (Part 325.3) When a bank is inadequately capitalized do you cite a violation or a contravention of policy?
A violation is cited only if Tier 1 is under 3 or 4%. A contravention is cited if a bank is undercapitalized due to either of the risk based capital ratios.
Note:
• Violation of Part 325 is considered for leverage capital standards.
• Contravention is cited if failure to meet RBC guidelines.
31
FDIC PART 325
| (Part 325.3(b)) What is the Minimum Leverage Capital Requirement?
* 3% > if fundamentally sound > well managed > no significant growth > Composite “1”
* 4% for all other institutions
32
FDIC PART 325
| (Part 325.104) What if Leverage Capital is below these levels?
It will prohibit any application from being approved and bank is required to file a written capital restoration plan to the FDIC RD within 45 days of date the bank receives notice or it represents an unsafe or unsound practice.
33
FDIC PART 325
| Part 325.4(b)) What constitutes an unsafe and unsound practice? (Per Capital Guidelines
Any bank which has less than its minimum leverage capital requirement is deemed to be engaged in an unsafe and unsound practice.
34
FDIC PART 325
| Part 325.4(c)) What constitutes an unsafe and unsound condition? (Per Capital Guidelines
Tier 1 Leverage Capital Ratio is less than 2% is deemed to operating in an unsafe and unsound condition.
35
FDIC PART 325
For Under Capitalized, Significantly Under Capitalized, or Critically Under Capitalized institutions under Part 325, a capital restoration plan must be submitted to RD entailing? (SLOTH)
* Steps the insured depository institution will take to become adequately capitalized
* Levels of capital to be attained during each year the plan will be in effect
* Other information as required under the particular Federal agency
* Types and levels of activities in which the institution will engage; and
* How the institution will comply with the restrictions in effect under PCANote: Must also have a performance guaranty and assurance from any controlling company that says the bank will comply with the plan until they are in compliance with capital requirements for 4 consecutive quarters.
36
FDIC PART 325
What are the limitations on the required performance guarantees by any controlling company of a bank for purposes of a capital restoration plan______?
5% of the bank’s TA at time of notice or amount to make the bank adequately capitalized. Expires after 4 consecutive quarters of being adequately capitalized.
37
FDIC PART 325
| (Part 325.5) How are intangibles valued?
* MSAs, Purchased CC Relationships and Non-MSAs
* Lesser of 90% of fair value or 100% of remaining unamortized book value.
* These assets will be limited to 100% of Tier 1 capital.
* Purchased CC Relationships and Non-MSAs
* Limited to 25% of Tier 1 capital.
* Deferred Tax Assets
* Limited to the lesser of the amount of DTA which can be recognized in the next 4 rolling quarters or 10% of Tier 1 capital before deduction of any disallowed MSA, any disallowed NMSA's, any disallowed Purchased CC Relationships, any disallowed credit enhancing I/O strips, any disallowed Deferred Tax assets and any nonfinancial equity investments
38
FDIC PART 325
| Part 325.103) What is Well Capitalized? (Subpart B-PCA
* Total Risk Based Capital – 10.0% or greater
* Tier 1 Risk Based Capital – 6.0% or greater
* Leverage Ratio – 5.0% or greater
* Not subject to an written agreement
39
FDIC PART 325
| Part 325.103) What is Adequately Capitalized? (Subpart B-PCA
* Total Risk Based Capital – 8.0% or greater
* Tier 1 Risk Based Capital – 4.0% or greater
* Leverage Ratio – 4.0% or greater
* OR 3.0% or greater and composite 1 rated, and not experiencing significant growth
40
FDIC PART 325
| Part 325.103) What is Undercapitalized? (Subpart B-PCA
* Below Adequately Capitalized
| * Can have a leverage ratio below 3% if composite 1 rated, and not experiencing significant growth
41
FDIC PART 325
| Part 325.103) What is Significantly Undercapitalized? (Subpart B-PCA
* Total Risk Based Capital – less than 6.0%
* Tier 1 Risk Based Capital – less than 3.0%
* Leverage Ratio – less than 3.0%
42
FDIC PART 325
| Part 325.103) What is Critically Undercapitalized? (Subpart B-PCA
Tangible equity < 2%
43
FDIC PART 325
| (Part 325.2(u)) What is Tangible equity capital?
* Tier 1 +
* cumulative perpetual preferred stock (including surplus)
* Less all intangible assets except eligible MSR.
44
FDIC PART 325
| (Part 325.103) When may FDIC reclassify a bank from Well Capitalized to Adequately Capitalized?
* Unsafe & Unsound Practice or Condition
| * Consent Order with capital provision
45
FDIC PART 325
(Part 325.103) May the FDIC reclassify an institution from Significantly Undercapitalized to Critically Undercapitalized?
No
46
FDIC PART 325
| Under Section 38(d) what restrictions are there on all banks?
Pay capital distributions or management fees causing it to become undercapitalized.
47
FDIC PART 325
| (Part 325.105) What is your hint for the 5 things U, SU, CU banks are subject to and what are they?
* Expansion Approval - expansion proposals require prior approval
* Capital Restoration Plan- required to be submitted
* Monitoring - FDIC monitoring of the condition of the bank required
* Restricted Growth - growth of the bank’s assets restricted
* Capital distributions - restricted
* Management fees - restricted
48
FDIC PART 325
| When will an Undercapitalized bank be subject to the provisions for a Significantly Undercapitalized bank? (3 times)
* Capital restoration plan was submitted, but disapproved
* Failure to submit a capital restoration plan within the period provided (45 days)
* Failure to materially comply with an approved capital restoration plan
49
FDIC PART 325
| SU, CU banks or U banks that have failed to submit /implement an acceptable capital restoration plan are also?
Per Appendix A of 325 - Restricted on compensation paid to senior executive officers of the institution
50
FDIC PART 325
| Per Section 38 of FDI Act – SU or Undercapitalized Banks (that fail to submit/implement plans) are also subject to:
* Management - improve (elect new directors, dismiss dire/EO, employ new EO)
* Other activities - certain activities restricted
* Recapitalization - required
* Transactions with affiliates - restricted
* Correspondent bank deposits - restricted
* Asset growth - restricted
* Interest rates paid on deposits - restricted
* Capital distributions by BHC - required prior approval
* Divestiture - required
51
(Part 325.6) Who can issue a capital directive and when can a directive be issued?
* Issued by FDIC BOD or its designee: When -
* Bank fails to maintain capital at or above the minimum leverage capital requirement
* Can only be used for SNMs
52
FDIC PART 325
| A directive is the equivalent of which formal or informal enforcement action?
Cease and desist
53
FDIC PART 325
| When the FDIC issues a directive to a bank, what is included in the written notification?
* T1 Leverage Capital Ratio
* Basis for calculation
* Proposed capital injection
* Proposed date for achieving the minimum leverage capital requirement
* Other relevant information
54
FDIC PART 325
| If a bank is critically undercapitalized the following provisions are applicable (Section 38 FDIC Act):
* Activities are restricted (see below)
* Payments on subordinated debt are prohibited
* Conservatorship, receivership, or other action required.
55
FDIC PART 325
| Part 325.105) What 8 actions require prior written FDIC approval for CU banks? (BLUE PAAS
* Bylaws / Charter - Amending the institution’s charter or bylaws
* Leveraged Transactions - Extendingcredit for any highly leveraged transaction
* Unusual business activities - Entering into any material transaction other than in the usual course of business
* Excessive Compensation - Paying excessive compensation or bonuses
* Paying P&I on Sub Debt - Making any principal or interest payment on subordinated debt beginning 60 days after
* Above market rates - Paying above market deposit rates
* Accounting Method Changes - Making any material change in accounting methods
* Sec 23A Covered Trans - Engaging in any covered transaction (23A)
56
FDIC PART 325
| Appendix A What is the Leverage Capital ratio?
Tier 1/ adjusted average assets** (average assets for the quarter)** Need to remember to subtract assets which are deducted from Tier 1 Capital (e.g. disallowed intangibles and Loss)
57
FDIC PART 325
(Appendix B - SOP on Capital Adequacy)What are the two exceptions from Call Report Instructions for calculating Tier 1 Capital and RWA?
V. Analysis of Consolidated Companies
• Securities subsidiaries shall not be accounted towards the bank’s capital and must be accounted for by the equity method while for the Call Report many may have consolidated on a line by line bases
• Call report instructions require that a domestic depository institution subsidiary be accounted for by the equity method, a line by line consolidation needs to be done for Tier 1 and RBC.
58
FDIC PART 325
| (Appendix C - RBC for state non-member banks; market risk)This part adjusts the RBC ratios for which institutions?
Any SNM bank whose trading activity equals (Tier 3):
• TA > $1 billion OR
• >10% of TA as trading assets
59
FDIC PART 325
| What is Part 325?
Capital Maintenance
60
FDIC PART 325
| What is Part 325 - Subpart A?
Minimum Capital Requirements
61
FDIC PART 325
| What is Part 325 - Subpart B?
Prompt Corrective Action
62
FDIC PART 325
| What is Part 325 - Subpart C?
Annual Stress Test
63
FDIC PART 325
| What is Part 325 - Appendix A?
Statement of Policy on Risk-Based Capital
64
FDIC PART 325
| What is Part 325 - Appendix B?
Statement of Policy on Capital Adequacy
65
FDIC PART 325
| What is Part 325 - Appendix C?
Risk-Based Capital for State Non-Member Banks; Market Risk
66
FDIC PART 325
| What is Part 325 - Appendix D?
Capital Adequacy Guidelines for Banks: Internal Ratings-Based and Advanced Measurement Approaches
67
FDIC PART 325
| (Part 325.2) What is Noncumulative Perpetual Preferred Stock?
* Perpetual preferred stock (and related surplus) where the issuer has the option to waive payment of dividends and where the dividends so waived do not accumulate to future periods nor do they represent a contingent claim on the issuer.
* Preferred stock issues where the dividend is reset periodically based, in whole or in part, upon the bank's current credit standing, including but not limited to, auction rate, money market and re-marketable preferred stock, are excluded from this definition of noncumulative perpetual preferred stock, regardless of whether the dividends are cumulative or noncumulative.
68
FDIC PART 325
| (Appendix A) What is preferred stock?
Preferred stock:
• Does not have a maturity date,
• Cannot be redeemed at the option of the holder,
• Has no other provisions that will require future redemption of the issue.
• Includes those issues of preferred stock that automatically convert into common stock at a stated date.
• It excludes those issues, the rate on which increases, or can increase, in such a manner that would effectively require the issuer to redeem the issue.
69
FDIC PART 325
| (Appendix A) What is long-term preferred stock?
Preferred stock including limited-life preferred stock with an original maturity of 20 years or more, provided that the stock cannot be redeemed at the option of the holder prior to maturity, except with the prior approval of the FDIC
70
FDIC PART 325
The risk weighted process for off-balance sheet items is a two step process. First, the _______ is determined by multiplying the face value or notional amount of the off-balance sheet item by a ______. Second, that amount is assigned to an appropriate ______.
* credit equivalent amount
* credit conversion factor
* risk-weighted category
71
FDIC PART 326
(Part 326.2) When must a bank designate a security officer and what is the time frame for the development and administration of a written security program?
* Upon issuance of deposit insurance
| * No later than 180 days.
72
FDIC PART 326
| (Part 326.3) The security program shall establish what procedures?
Regulation requires procedures on the following items:
• Safekeeping - procedures that for the safekeeping of all currency, negotiable securities, and similar valuables
• Evidence - procedures that will preserve evidence that may aid in their identification and prosecution
• Opening / Closing - procedures for opening / closing for business
• Records - procedures for retaining a record of any robbery, burglary, or larceny committed against the bank
• Identification - procedures that will assist in identifying persons committing crimes against the bank
• Training - periodic training and proper employee conduct during and after a robbery, burglary or larceny
• Security Devices - procedures for selecting, testing, operating and maintaining appropriate security devices
73
FDIC PART 326
| (Part 326.3) What are other Part 326 – Physical Security requirements?
* Camera
* Means of protecting cash
* Lighting systems
* Alarm system
* Tamper resistant locks
* ID devices (e.g. pre-recorded serial numbered bills or chemical devices)
* Other devices deemed appropriate
74
FDIC PART 326
| (Part 326.4) How is the Board affected by Part 326?
The security officer for each insured nonmember bank shall report at least annually to the bank’s board on the implementation, administration, and effectiveness of the security program.
75
FDIC PART 326
| (Part 326.8) Which requirements governing BSA are covered under Part 326?
Compliance procedures:
• BSA Compliance Program - written, approved by BOD, and noted in the minutes
• Customer Identification Program - require customer ID program to be implemented under BSA compliance program
76
FDIC PART 326
| What four items must the BSA Policy address?
* Internal controls
* Independent testing
* Individual responsible
* Training
77
FDIC PART 326
| What is Part 326?
Minimum Security Devices and Procedures and Bank Secrecy Act Compliance
78
FDIC PART 327
(Part 327.9) Each bank is assigned to one of three Supervisory Groups based on evaluations provided by regulators, what are the three groups?
* Group A: Financially sound with only a few minor weaknesses (1 and 2 rated)
* Group B: Weaknesses, which if not corrected, could result in significant deterioration and increased risk of loss to the fund (3 rated)
* Group C: Pose a substantial probability of loss to the fund (4 and 5 rated)
79
FDIC PART 327
(Part 327.9) Capital Factors: (4 different risk categories based on whether the institution is well capitalized, adequately capitalized or undercapitalized)
* Risk Category I - Small institutions in Supervisory Group A that are WC.
* Risk Category II - Small institutions in Supervisory Group A that are AC, and small institutions in Supervisory Group B that are either WC or AC;
* Risk Category III - Small institutions in Supervisory Groups A and B that are UC, and small institutions in Supervisory Group C that are WC or AC; and
* Risk Category IV - All institutions in Supervisory Group C that are UC.
80
FDIC PART 327
| (Part 327.4) May banks disclose their risk assessment classification?
Banks cannot disclose their risk assessment classification.
81
FDIC PART 327
| What is Part 327?
Assessments
82
FDIC PART 329
| What is the criteria to be considered a retail repurchase agreement?
* Arise from transfer of federal securities• Been in denominations less than $100M• Mature in less than 90 days
* Obligate bank to repurchase the underlying federal security
83
FDIC PART 329
| How are Dollar Repos different from regular repos?
* Regular Repos - need to repurchase the exact same security
| * Dollar Repos - have to purchase substantially the same security / used to cover shorts / need to own 35 days
84
FDIC PART 327
| What is Part 329?
Interest On Deposit
85
FDIC PART 330
| What does the term deposit mean?
* Unpaid balance of money in a commercial, checking, savings, time, or thrift account; a check or draft drawn against a deposit account; or a letter of credit or a travelers check
* Trust Funds
* Money received or held by a bank or savings association (ex: escrow funds, funds held for dealer reserves provided these funds do not offset indebtedness at the bank
* Outstanding draft (cashier’s check, money order or other officer’s check)
* Other such obligations as deemed by regulatory agencies
86
FDIC PART 330
| What is not a deposit?
* Any obligation carried on the books and records of such bank or savings association located outside of any State (unless payable at a bank located in State or a contract evidencing the obligation provides express terms that it is payable at a bank located in any State)
* Any international banking facility deposit
* Any liability of an insured depository institution that arises under an annuity contract, the income of which is tax deferred.
87
FDIC PART 330
| What accounts are insured separately to $250M?
* Single Ownership Accounts (individual; sole proprietorship; decedent and decedent estate accounts; fiduciary accounts; single name accounts with community property funds; funds that fall into ownership categories that fail to qualify for deposit insurance coverage in other account ownership categories such as non-qualifying joint accounts, payable on death accounts, revocable living trusts for the benefit of nonqualified beneficiaries; official checks, portion of escrow accounts such as insurance and taxes.
* Joint Ownership Accounts (all must be natural persons, sign signature card, and have equal withdrawal rights)
* Retirement Accounts (defined benefit plans; defined contribution plans; health and welfare plans; IRA and Keoghs (aggregated together up to $250M; educational IRA is an irrevocable trust); employee benefit plans
* Revocable Trust Accounts (beneficiaries must be natural persons, or non-profits or charities as defined by the IRS). Informal Revocable Trust: payable on death, in-trust for, totten trust
* Formal Revocable Trust: living trust or family trustRule for Revocable Trusts: If five beneficiaries or fewer and one grantor, account insured up to $1.25MM. The FDIC will not look at how money is distributed and will insure all beneficiaries to $250M (Ex: Four beneficiaries have $1, and the fifth has $1,224,996. The account is insured to $1.25MM) If over five beneficiaries or above $1.25MM, FDIC will look at how the money is distributed, but a minimum of $1.25MM will be insured (ex: Five beneficiaries have $1, and the sixth has $1,499,995. The account is insured to $1.25MM).
* Irrevocable Trust (Each beneficiary is insured up to $250M; however separate insurance for contingent (ex: beneficiary must graduate college) and noncontingent (no strings attached) interests.
* Accounts held by a depository institution as the trustee of an irrevocable account
* Accounts held by an agent, nominee, guardian, custodian, or conservator
* Annuity Contracts (a separate account must be established, account cannot be invaded by other creditors, the account cannot be charged with liabilities)
* Accounts of a Corporation, partnership, or unincorporated association (formed for religious, educational, social, charitable, or other non-commercial)
* Accounts held by government depositors (separate insurance coverage for interest bearing and noninterest bearing accounts)• Accounts owned by American Indians (Ex: Bureau of Indian Affairs)
* Department of Energy Accounts
88
FDIC PART 330
| What are the details regarding the continuation of insurance coverage following the death of a deposit owner.
The death of a deposit owner shall not affect the insurance coverage of the deposit for a period of six months following the owner's death unless the deposit account is restructured. The operation of this grace period, however, shall not result in a reduction of coverage. If an account is not restructured within six months after the owner's death, the insurance shall be provided on the basis of actual ownership
89
FDIC PART 330
What is the Impact of a bank merger on an individual depositor’s accounts, who had deposits at both insured institutions?
Coverage would continue as though they were separate institutions for 6 months or the first contractual maturity of a time deposit after that 6 month period. If a time deposit comes due within the 6 month window, coverage will continue until the first maturity after the 6 month period if it is rolled over into exactly the same instrument
90
FDIC PART 330
| What is Part 330?
Deposit Insurance Coverage
91
FDIC PART 333
| What does this regulation govern?
No SNM shall change the general character of business without consent of the corporation. The test to determine whether a change if business has occurred is left to the FDIC.
92
FDIC PART 333
| What are five categories for classifying general character or type of business?
* Commercial banks
* Banks and trust companies
* Savings banks (including mutual and stock)
* Industrial banks
* Cash depositories
93
FDIC PART 333
| If a bank wants to enter into trust activities, what does Part 333 require?
The FDIC would have to offer “consent” but it cannot “grant” trust powers, which are left to the respective state.
94
FDIC PART 335
| What is Part 335?
Securities of Nonmember Insured Banks
95
FDIC PART 336
No person shall become employed or otherwise perform any service for or on behalf of the FDIC under what 4 circumstances?
* Been convicted of any felony
* Been removed from, or prohibited from participating in the affairs of, any insured depository institution pursuant to any final enforcement action by any appropriate federal banking agency
* Demonstrated a pattern or practice of defalcation regarding obligations to insured depository institutions
* Caused a substantial loss to federal deposit insurance funds
96
FDIC PART 337
| What is the definition of a deposit broker?
* Placing or Facilitating the placement of deposits, of third parties with banks
* An agent who establishes a deposit account to facilitate a business arrangement with a bank to use the proceeds of the account to fund a prearranged loan
* A brokered deposit is any deposit obtained through a broker (exclusions include an entity compensated solely through listing fees, fees from banks that are flat fees, the entity only gathers and transmits information, and the listing service is not involved in placing or confirming placement of deposits).
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FDIC PART 337
| What is not included as a deposit broker?
* Trust Department - A trust department of a bank, if the trust or other fiduciary relationship has not been established for the primary purpose of placing funds with banks
* Trust Account - Trustee of a testamentary account or IRR trust
* Pension Plan - A person acting as a plan administrator or an investment adviser with a pension plan or employee benefit plan
* Profit Sharing - A trustee of custodian or a pension or profit-sharing plan
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FDIC PART 337
| When can bank’s have Brokered Deposits?
* Well Capitalized - can accept, renew, or roll over without restriction.
* Adequately Capitalized - must obtain FDIC waiver for such activities
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FDIC PART 337
What items need to be included in the request for an adequately capitalized bank to obtain or rollover brokered deposits? (8 items)
* Time period requested for
* Statement on the use of BD in the overall funding and liquidity program of the bank
* Volume, rates, and maturity held and anticipated, including internal limits on their solicitation
* Cost comparison to other funding sources, and how they are used in the lending and investing activities
* Recent financials
* Management systems overseeing the BODs
* Reason it won’t pose undue risk
* Procedures and practices for BD solicitation
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FDIC PART 337
| Are banks seeking a waiver required to list brokers to be used?
No
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FDIC PART 337
| May the FDIC revoke any granted waivers by written notice?
Yes
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FDIC PART 337
| With respect to brokered deposits, what if a bank is in Conservatorship?
Not subject to prohibition for 90 days, then no brokered deposits allowed.
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FDIC PART 337
| What are the limitations on brokered deposits for Adequately Capitalized institutions which obtain a waiver?
May not pay 75 bps over the effective yield paid on deposits or a comparable size or maturity (regional) or the national rate (national rate is 120% of current yield on similar US Treasury obligations or if at least half of what is uninsured - 130%).
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FDIC PART 337
| What does Section 337.12 and Section 10(d) require?
Annual full-scope on-site examination at least once during each 12-month period. From end of last exam.
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FDIC PART 337
| When may the exam schedule be extended to 18 months?
* Total assets $500MM or less
* Well capitalized per Part 325
* Well managed (PX management “1” or “2”)
* Composite “1” or “2” at PX
* Not subject to formal enforcement proceeding or order by FDIC, OCC, or Fed
* No person acquired control during preceding 12-month period
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FDIC PART 337
| Under what circumstances are brokered deposits acceptable?
* Composite 1 or 2 rating
| * Stable/Improving Composite 3 rating
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FDIC PART 337
| What do you do if a bank cannot provide maturity dates for SBLOCs originated over the last year?
Cite a violation of part 337 - (Section 337.2(d) requires maintenance of adequate controls and subsidiary records of SBLOCs comparable to records made on direct loans so that a bank’s total liability may be determined at all times.)
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FDIC PART 337
What FDIC Regulation makes Regulation O applicable to state nonmember banks and sets forth requirements for approval of extensions of credit to insiders?
Section 337.3
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FDIC PART 337
What are the differences between Section 22(g) and 22(h), Regulation O and Section 337.3 of the FDIC Rules and Regulations?
* Section 22(g) and 22(h) - Pertains to loans and extensions of credit by both member and nonmember banks to the EOs, directors or PS. Aimed at detection of insider abuse.
* Regulation O - Requires same terms, aggregate lending limits and prior approval, restrictions on overdrafts
* Section 337.3 – prior approval by the Board of extensions of credits to EOs
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FDIC PART 339
| According to Part 339, what does a bank need to do if a borrower is in a flood plain?
Requires flood insurance for the term of the loan.
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FDIC PART 339
| What does Part 339 require?
* Escrow - if bank escrows taxes, insurance, and fees, they must do so for flood insurance premiums
* Flood Hazard Determination Form - must prepare standard flood hazard determination form
* Insurance borrower must purchase flood insurance / bank notifies customer and gives 45 days
* Notification - bank must provide written notification property is in flood plan prior to loan
* FEMA - bank must notify FEMA of any issuance, extension, or transfer of loans secured by RE in flood hazard area
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FDIC PART 344
| What should a bank’s written policy related to securities trading policy include?
* Responsibility
* Fair and equitable allocation - of securities and prices when orders for the same security are received at the same time
* Crossing of buy and sell orders - on fair and equitable basis for the parties where applicable
* Disclosure by Bank officers/employees - must report within 30 days after the end of the calendar quarter all securities transactions made by them which they have a beneficial interest in
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FDIC PART 345
| What are the three CRA tests?
* Lending, Investment and Service Tests
* Lending test - evaluates lending activities by considering a bank’s home mortgage, small business, small farm, and community development lending.
* Investment test - evaluates bank’s record of helping to meet credit needs of its assessment area through qualified investments that benefit its assessment area or broader statewide regional area.
* Service Test - evaluates a bank’s record of helping to meet credit needs of its assessment area by analyzing both the availability and effectiveness of a banks systems for delivering retail banking services and to the extend and innovativeness of its community development services.
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FDIC PART 345
| How do you rate CRA?
* Outstanding;
* Satisfactory;
* Needs to improve; or
* Substantial noncompliance
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FDIC PART 345
What does the CRA rating reflects with regard to the bank’s record of helping meet the credit needs of its entire community, including low and moderate income neighborhoods?
* An “outstanding” on lending test receives an assigned rating of at least satisfactory
* A bank that receives an “outstanding” rating on both the service test and the investment test and a rating of at least “high satisfactory” on the lending test receives an assigned rating of “outstanding.”
* No bank may receive an assigned rating of satisfactory or higher unless it receives a rating of at least “low satisfactory” on the lending test.
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FDIC PART 347
| According to Part 347 how much stock can be owned in a foreign bank?
25% of capital
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FDIC PART 347
| What is a bank’s major sources of profit, both internationally and domestically?
Interest received from lending and securities instruments.
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FDIC PART 347
| What are other ways international departments produce revenue?
• Cables
• Foreign exchange operations
Note: few of these activities produce income after expenses but rather are required to attract customers.
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FDIC PART 347
| What are the three international lending risks?
* Country Risk
* Credit Risk
* Currency Risk
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FDIC PART 347
| What is country risk?
Institutions engaged in international activities are exposed to country risk, which includes:
• Economic
• Social
• Political conditions / Events In foreign country that will adversely affect an institution’s financial interests.
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FDIC PART 347
What are some possible risks caused from international deteriorating economic conditions and political and social unrest?
Other risks include:
• Rate of default by obligors
• Country risk includes the possibility of nationalization or expropriation of assets
• Government repudiation of external indebtedness
• Exchange controls
• Current depreciation or devaluation
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FDIC PART 347
| What is the single most important function of international banking departments?
To facilitate international trade
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FDIC PART 347
| What classifications apply to international debt?
Value Impaired, Substandard and Loss
• Substandard - country is not complying with its external service obligations, country is not in the process of adopting an International Monetary Fund (IMF) or other suitable economic program (or adhering to such a program), or country and its bank creditors have not negotiated a viable rescheduling and are unlikely to do so soon.
• Value Impaired - country has not fully paid interest for 6 months, country has not complied with IMF programs (and there is not immediate prospects for compliance), country has not met rescheduling terms for > 1 year, and country shows no definite prospects for orderly restoration of debt service in the near future.
• Loss - loan is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted. For example: outright statement by a country which repudiates obligations to banks, the IMF, or other lenders.
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FDIC PART 348
| What is the purpose of Part 348?
To foster competition - A management official of one depository institution or depository holding company from also serving in a similar function in another depository institution or holding company if the companies are not affiliated and are located in the same area or if the organizations are not affiliated and are very large.
125
FDIC PART 348
| What does Part 348 prohibit?
* Contiguous communities - May not serve on two banks if in same community or contiguous cities
* Same RMSA (50MM+) - May not serve if banks have offices in same RMSA and each has total assets of $50MM or more.
* Two banks of 1.5B & 2.5B - Mgmt official of banks w/ TA exceeding $2.5 billion may not serve at same time at bank w/ TA exceeding $1.5 billion, regardless of location
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FDIC PART 348
| What is a management official for 348?
* Director
* Advisory or honorary director of the bank w/TA of $100MM or more
* Senior Executive Officer
* Branch Manager
* Trustee, nominee serving in above capacities.
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FDIC PART 348
| Who is exempt from Part 348?
* Affiliates
* Banks not doing business in the US
* Closed or nearly closed banks
* Credit unions
* Edge Corporation – Section 25 or 25A of FR Act
* FHLB
* State-chartered S&L guaranty corp.
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FDIC PART 348
| What is the small market share exception?
* Not in major assets category
* Depository organizations hold, in aggregate, no more than 20% of the deposits in each RMSA which they both have offices (according to Summary of Deposits of FDIC)
* Must retain records to support determination of eligibility
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FDIC PART 348
| The FDIC may permit Small Market Share Exception (by application which is good for 3 years) if?
* It would not result in a monopoly or substantially lessen competition
* The BOD of the organization being formed is unable to locate other candidates from community or RMSA who has experience
* The management official is critical to the safe & sound operations
* Service by the official will not produce an anti-competitive effect
* If improves provision of credit to low & moderate income areas
* Increases the competitive position of a minority or women owned (bank)
* Strengthen the management of bank chartered less than 2 years or in unsafe or unsound condition.
* Note: Items 3-5 must be met in unison
130
FDIC PART 348
| What is the meaning of contiguous/adjacent cities?
Cities, towns, or villages whose borders are within 10 road miles of each other at their closest points
131
FDIC PART 350
| What are the content for an annual disclosure statement (statement must be available to public by March 31st)?
* Financial Information (Most recent CALL report (or RC, RI, RC-N)
* Other required Information from FDIC
* Optional Information (info bank management considers important to overall evaluation)
* Disclaimer: advise the public the FDIC has not reviewed the information therein
132
FDIC PART 350
| How must the bank display this information?
* Post in lobby of its main office and each branch
| * Display a notice that the annual disclosure statement may be obtained from the bank.
133
FDIC PART 353
| Under what circumstances does the bank have to file a SAR?
* Over $5,000 if a suspect can be identified
* Over $25,000 regardless of whether-or-not a suspect can be identified
* Insider abuse in any amount
* Suspected or actual money laundering or BSA violations over $5,000
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FDIC PART 359
| Golden parachute payments are generally prohibited for what type of institution?
Troubled institutions.
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(FDIC PART 359
| When is a golden parachute payment permissible?
* FDIC Determines Appropriate - The appropriate Federal Banking Agency determines it is appropriate
* White Knight Agreement - Agreement is made to hire a person to become an IAP at a time when the depository institution or holding company is (or to prevent it from becoming) insolvent, appointment of a receiver, holding company is in troubled condition, bank has a composite 4 or 5 rating, or bank subject to a proceeding to terminate or suspend deposit insurance. “White Knight”
* Reasonable Severance (12 Months) - Such payment is made pursuant to an agreement which provides for a reasonable severance payment, not to exceed 12 months salary, in the event of a change of control of the insured depository institution
* Prudent IAP - The insured depository institution does not have any evidence that the institution affiliated party:
* Committed any fraudulent act or omission, breach of trust or fiduciary duty, or insider abuse
* Is not responsible for the insolvency of or the troubled condition of the insured depository institution
* Has not materially violated any federal or state banking law or regulation
* Has not violated or conspired to violate certain sections of Title 18 of the United States Code
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FDIC PART 359
| What are some exceptions / permissible activities under the golden parachute rule? (BNP PPQ)
* Bona-fide deferred compensation plans
* Nondiscriminatory severance payment plans
* Payments pursuant to employee welfare benefit plans
* Payments made by reason of termination caused by death or disability
* Payments required by State statute or foreign law
* Qualified pension or retirement plans
137
FDIC PART 359
In general, indemnification payments (bank pays institution affiliated party’s costs sustained for administrative or civil enforcement action) are prohibited (regardless of the health of the depository institution). When are these permissible?
* IAP Acted in Good Faith - Board of Directors determines that IAP acted in good faith
* Immaterial Expense - expenses will not materially affect the institutions
* Non-Prohibited Indemnification - it is not a prohibited indemnification payment (e.g. CMP, final order removing institution affiliated party, IAP required to cease and desist)
* Reimbursement - IAP will reimburse the bank or holding company (to the extent not covered by insurance or bonds) for any portion of legal or professional fees advanced if it is determined IAP violated a law, regulation, or fiduciary duty.
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FDIC PART 362
This part implements section 24 of the FDI Act, restricting and prohibiting insured state banks and their subsidiaries from engaging in ______?
Activities and investments that are not permissible for a national bank.
139
(FDIC PART 362
| A bank’s aggregate investment in listed stock and registered shares shall in no event exceed ______?
100% of Tier 1 capital as of the most recent Call Report.
140
FDIC PART 362
| What is the limit on aggregate investment in subsidiaries?
20% of Tier 1 Capital.
141
FDIC PART 362
| What are the limits on investments in adjustable rate and money market preferred stock?
15% of Tier One Capital
142
FDIC PART 362
| What are the limits on investments in qualified housing projects?
2% of Total Assets
143
FDIC PART 363
| Banks subject to Part 363 must do what?
* Engage an independent public accountant
* Prepare annual financial statement in accordance with generally accepted accounting principles (GAAP)
* Produce annual reports (signed by the CEO and CFO or Chief Accountant)
144
FDIC PART 363
| What must the Annual Report include?
* Annual comparative financial statements (in accordance with GAAP)
* Independent Public Accountant’s report on the financial statements
* A management report that contains:
* A statement of management’s responsibilities for preparing the annual financial statements, establishing an adequate internal control structure and procedures for financial reporting, and complying with laws and regulation
* An assessment by management of the institution’s compliance with designated laws and regulations during the year
* An assessment of management of the effectiveness of the institution’s internal control structure and procedures for financial reporting at the end of the fiscal year (ONLY FOR INSTITUTIONS WITH TOTAL ASSETS OF $1B OR MORE)
145
FDIC PART 363
| An annual report must be filed within how many days?
90 days
146
FDIC PART 363
Within __ days after receipt, the institution must submit any management letter, qualification, or other report issued by its independent public accountant, and the services provided by the accountant.
15 days
147
FDIC PART 363
Within __ days of occurrence, the institution must provide written notice of the engagement of an accountant, the resignation or dismissal of a previously engaged accountant, and the reasons for such an event.
15 days
148
FDIC PART 363
| What are the requirements for the independent audit committee established under Part 363?
TA with $500MM or more but less than $1B :
• All committee members must be outside directors of the institution
• The majority of audit committee members must be independent of managementTA of $1B or greater:
• All committee members must be outside directors of the institution
• All committee members must be independent of management of the institution.TA of $3B or greater:
• Shall include members who have banking and related financial management expertise
• The AC may not include any large customers of the bank
• The AC must have access to its own outside counsel
149
FDIC PART 363
| What does Part 363 establish?
Audit and reporting requirements for insured depository institutions with total assets of $500 million or more and engaging in an independent public accountant.
150
FDIC PART 363
| What is the basic purpose of an internal auditor according to the manual?
The prevention and detection of loss.
151
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FDIC PART 364
Appendix A (enforces Section 39 of FDI Act) : Operational and Managerial Standards:
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* Internal controls and information systems
* Internal audit system
* Loan documentation
* Interest rate exposure
* Asset growth
* Asset quality
* Earnings
* Compensation, fees and benefits
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FDIC PART 364
| Prohibition on Compensation That Constitutes an Unsafe and Unsound Practice:
Excessive compensation - when amounts paid are unreasonable or disproportionate to the services performed by the executive officer, employee, director, or principal shareholder.
• Compensation includes cash and noncash benefits, compensation history of individual vs. other individuals with same expertise, condition of the bank, comparable compensation practices at other institutions, post-employment benefits, connection between the individual and fraudulent activities, and other relevant factors.
• Compensation leading to material financial loss.
153
FDIC PART 364
| Appendix B Interagency Guidelines Establishing Information Security Standards, Is designed to:
* Confidentiality of PII - ensure the security and confidentiality of customer information;
* Protect Against Threats - any anticipated threats or hazards to the security or integrity of such information;
* Protect Against Unauthorized Access - to or use of such information that could result in substantial harm or inconvenience to any customer
* Proper Disposal of PII - Ensure the proper disposal of customer information and consumer information.
154
FDIC PART 364
Appendix B Interagency Guidelines Establishing Information Security Standards, Is designed to: What are the elements of a comprehensive written information security program?
* Involve the Board of Directors
* Assess Risk
* Manage and Control Risk
* Oversee Service Provider Arrangements
* Adjust the Program
* Report to the Board
* Implement the Standards
155
FDIC PART 364
| What does Appendix A & B represent?
* Appendix A - Enforces Section 39 of the FDI Act
| * Appendix B is the Gramm-Leach Bliley Act
156
FDIC PART 365
| Internal LTV limits on real estate should not exceed? (Interagency guidelines)
* 65% for raw land
* 75% for land development
* 80% for commercial, multi-family and other non-residential construction
* 85% for residential construction (1-4)
* 85% for improved property (e.g. agricultural land in production, non-owner occupied 1-4s, multifamily residential, and commercial property)
* No limit for owner-occupied residential loans (PMI or readily marketable over 90%)
* Government guaranteed loans and loans to be sold in secondary market without recourse are exemptedAll loans in excess of these limits should not exceed 100% of total capital and commercial, agricultural, and multifamily residential loans in excess of these limits should not exceed 30% of total capital and should be reported to the Board at least quarterly.
157
FDIC PART 365
| Total Capital = Total RBC?
Yes
158
FDIC PART 365
| What does Part 365 require for institutions to include in their RE lending policies?
* Documentation
* Approval
* Reporting requirements
* Portfolio diversification standards
* Prudent underwriting standards including LTV limits
* Procedures for monitoring RE markets within the institution’s lending area
* Loan administration procedures
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FDIC PART 365
| What does Part 365 of the FDI Rules & Regulations require? (WAS)
* Written policy that considers the interagency guidelines for real estate lending policies
* Annual review of policy by BOD
* Safe and sound banking practices
