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FDIC STATEMENTS OF POLICY > FDIC STATEMENTS OF POLICY > Flashcards

FDIC STATEMENTS OF POLICY Flashcards

1
Q

FDIC STATEMENT OF POLICY
What is the purpose of the Interagency Policy Statement on Documentation for Loans to Small- and Medium-Sized Businesses and Farms?

A

The four federal agencies (OCC, FDIC, Fed, and OTS) are concerned that institutions may perceive that the agencies are requiring a level of documentation to support these types of loans that are in excess of what is necessary to make a sound credit decision. Unnecessary documentation raises the cost, may result in delays in bank lending decisions, and may discourage good borrowers from applying. Therefore, banks will be permitted to identify a portion of their portfolio of small-and medium-sized business and farm loans that will be evaluated solely on performance and will be exempt from examiner criticism of documentation.

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2
Q

FDIC STATEMENT OF POLICY
Interagency Policy Statement on Documentation for Loans to Small- and Medium-Sized Businesses and Farms
The aggregate of all exceptions are limited to _____% of total capital.

A

20%

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3
Q

FDIC STATEMENT OF POLICY
Interagency Policy Statement on Documentation for Loans to Small- and Medium-Sized Businesses and Farms
Each exception (aggregated by borrower) is subjected to a maximum size of $____ or _____% of total capital, whichever is smaller.

A

$900M or 3%

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4
Q

FDIC STATEMENT OF POLICY
Interagency Policy Statement on Documentation for Loans to Small- and Medium-Sized Businesses and Farms
What composite rating and capital level must a bank have to take advantage of this documentation exemption?

A

The bank must have a composite rating of 1 or 2 and be WC or AC to be eligible to take advantage of this.

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5
Q

FDIC STATEMENT OF POLICY
Interagency Retail Credit Classification Policy
What does retail credit consists of?

A

Open-end and closed-end credit extended to individuals for household, family, and other personal expenditures (includes consumer loans and credit cards). Also includes loans to individuals secured by their personal residence, including first mortgage, home-equity and home improvement loans.

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6
Q

FDIC STATEMENT OF POLICY
Interagency Retail Credit Classification Policy
Open-end and closed-end credits past due __ days should be classified Substandard?

A

90 days

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7
Q

FDIC STATEMENT OF POLICY
Interagency Retail Credit Classification Policy
How past due should a retail loan be before it should be classified loss and charged off?

A
  • Open end - 180 days
  • Closed-end - 120 daysNote: Loans with non-RE collateral may be written down to the value of the collateral, less cost to sell.
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8
Q

FDIC STATEMENT OF POLICY
Interagency Retail Credit Classification Policy
Accounts in bankruptcy should generally be charged off within how many days?

A

60 days of notice. Loans with collateral may be written down to the value, less cost to sell; anything not charged off should be classified Substandard.

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9
Q

FDIC STATEMENT OF POLICY
Interagency Retail Credit Classification Policy
Fraudulent loans should be charged off within ___ days of discovery.

A

90 days

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10
Q

FDIC STATEMENT OF POLICY
Interagency Retail Credit Classification Policy
When should Residential RE loans and home equity loans be classified Substandard and Loss?

A
  • Substandard - delinquent 90 days or more with LTV greater than 60 %
  • Loss - For open- or closed-end 1-4 family residential RE, a current assessment of value should be made no later than 180 days past due and any balance in excess of the fair value (less cost to sell) should be charged off
  • Substandard - Home-equity loans where the bank has a junior lien, past due 90 days, even if the LTV ratio is equal to, or less than 60%All loans that are classified Loss and charged-off is determined by this Policy or the bank’s Classification Policy, whichever is shorter.
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11
Q

FDIC STATEMENT OF POLICY
Interagency Retail Credit Classification Policy
What is the criteria for an open-ended account to be re-aged?

A
  • Borrower is willing and able to repay,
  • Account has existed for 9 months,
  • At least three consecutive minimum monthly payments,
  • Should not be re-aged more than once within 12 months or two times within any 5 year period.
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12
Q

FDIC STATEMENT OF POLICY
Interagency Retail Credit Classification Policy
How much performance is needed before re-aging or for an account to be eligible for a work-out program?

A

Borrower should make at least three minimum consecutive monthly payments or the equivalent lump sum payment.

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13
Q

FDIC STATEMENT OF POLICY
Interagency Retail Credit Classification Policy
What are the standards that banks should adopt to control the use of extensions, deferrals, renewals, and rewrites for closed-end credits?

A

The borrower should have the willingness and ability to repay, limit the number and frequency, and additional advances to finance unpaid interest and fees should be prohibited.

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14
Q

FDIC STATEMENT OF POLICY
Interagency Statement on Retail Sales of Non-Deposit Investment Products
What are the minimum NDIP disclosures?

A
  • Not FDIC Insured
  • Not a deposit and not bank guaranteed
  • Subject to investment risk, including potential principal loss OR May lose value
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15
Q

FDIC STATEMENT OF POLICY
Interagency Statement on Retail Sales of Non-Deposit Investment Products
When should the minimum disclosures be provided?

A
  • Orally during any sales presentation
  • Orally when any investment device concerning NDIPs is provided
  • Orally, and in writing prior to or at the time an investment account is opened
  • In advertisements and other promotional materials
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16
Q

FDIC STATEMENT OF POLICY
Interagency Statement on Retail Sales of Non-Deposit Investment Products
How are depository institution employees allowed to be compensated for selling NDIP?

A

Employees may receive a one-time fixed referral fee (must not depend on whether or not the referral results in a transaction). Personnel who sell may receive commissions; however incentive compensation programs must not be structured in such a way as to result in unsuitable recommendations or sales being made to customers.

17
Q

FDIC STATEMENT OF POLICY
Interagency Policy Statement on Income Tax Allocation To the Holding Company
What are the General Guidelines?

A

A Tax-Sharing Agreement should exist and should:
a) Stipulate that a subsidiary bank should compute its tax liability on a stand-alone basisb) Discuss the amount and timing of tax payments, including estimated taxesc) Discuss reimbursements to the bank when, for tax purposes, the bank reports a lossd) Prohibit the payment or other transfer of deferred taxes to another member of the consolidated group.
• Deferred tax calculations should be maintained as if on a stand-alone basis
• Tax payments to a holding company should not exceed the bank’s liability on a stand-alone basis
• A bank should not pay its deferred tax liability to the parent
• The amount and timing of payments or refunds should be no less favorable to the subsidiary than if it were a separate taxpayer

18
Q

FDIC STATEMENT OF POLICY
Interagency Policy Statement on Prudent CRE Loan Workouts
Should examiners adversely classify a renewed or restructured loan to borrowers who have the ability to repay their debts according to reasonable modified terms when the value of the underlying collateral has declined to an amount less than the loan balance?

A

No.

19
Q

FDIC STATEMENT OF POLICY
Interagency Policy Statement on Prudent CRE Loan Workouts
Should examiners adversely classify a loan is that current due to payments from an interest reserve, but the principal repayment source is in jeopardy?

A

Yes

20
Q

FDIC STATEMENT OF POLICY
Interagency Policy Statement on Prudent CRE Loan Workouts
How should a collateral dependent troubled CRE loans be classified?

A
  • As a general classification principal, any portion of the loan balance that exceeds the amount that is adequately secured by the market value of the real estate collateral less cost to sell should be classified Loss.
  • The portion that is adequately secured should generally be classified no worse than Substandard.
  • A Doubtful classification is warranted when the potential for full loss may be mitigated by the outcomes of pending events, or when loss cannot be reasonably determined.
  • If well-defined weaknesses exist and a partial charge-off has been taken, the remaining recorded balance for the restructured loan generally should be classified no more severely than Substandard.
21
Q

FDIC STATEMENT OF POLICY
Interagency Policy Statement on Prudent CRE Loan Workouts
What should examiners do if underlying facts or assumptions are inappropriate in an appraisal, evaluation or supporting documentation?

A
  • Examiners should direct the institution to address the weaknesses, which may require the institution to obtain a new collateral valuation.
  • If the institution is unwilling to address the deficiencies in a timely manner, examiners may make adjustments, if applicable, to the collateral’s value to reflect current market conditions and events, such as current and projected vacancy and absorption rates; lease renewal trends and anticipated rents; effective rental rates or sale prices (considering sales and financing concessions; time frame for achieving stabilized occupancy or sellout; volume and trends in past due leases; net operating income of the property as compared with budget projections, reflecting reasonable operating and maintenance costs; and discount rates and direct capitalization rates.
22
Q

FDIC STATEMENT OF POLICY
Interagency Policy Statement on Coordination Between External & Internal Auditors & Examiners
What can a depository institution provide its external auditors?

A

Consistent with prior practice, a depository institution should provide its external auditors with a copy of certain reports and supervisory documents, including:
• Report of Condition
• Report of Examination
• Pertinent correspondence for regulators
• MOUs implemented since the beginning of the period covering audit
• Written agreements between Federal or state banking agency
• Any action initiated or undertaking by Federal banking agency since beginning of period covered

23
Q

FDIC STATEMENT OF POLICY
Interagency Policy Statement on Coordination Between External & Internal Auditors & Examiners
Are external auditors encouraged to attend exit meetings?

A

Yes

24
Q

FDIC STATEMENT OF POLICY
Interagency Policy Statement on Funding and Liquidity Risk Management
An institution’s liquidity risk management process should be sufficient to what?

A

An institution’s liquidity risk management process should be sufficient to meet its daily funding needs and cover both expected and unexpected deviations from normal operations.

25
Q

FDIC STATEMENT OF POLICY
Interagency Policy Statement on Funding and Liquidity Risk Management
A comprehensive Risk Management System should do what?

A

A Comprehensive Risk Management System should identify, measure, monitor, and control liquidity risk.

26
Q

FDIC STATEMENT OF POLICY
Interagency Policy Statement on Funding and Liquidity Risk Management
What would a sound Risk Management System plan include?

A

A sound plan would include the following:
• Corporate governance / oversight and active involvement by management and BOD
• Appropriate strategies, policies, procedures, and limits
• Comprehensive risk measurement and monitoring systems
• Active management of intraday liquidity and collateral
• Appropriately diverse mix of existing and potential future funding sources
• Adequate levels of highly liquid assets in stressful situations
• Comprehensive contingency funding plans (CFPs)
• Internal controls and audit processes

27
Q

FDIC STATEMENT OF POLICY
Joint Policy Statement on Funding on Interest Rate Risk
What are the responsibilities of the Board?

A
  • Risk Tolerance on IRR - Establish and guide the bank’s tolerance for interest rate risk, including approving relevant risk limits and other key policies, identifying lines of authority and responsibility to manage risk, and ensuring adequate resources are devoted to interest rate risk
  • Monitor IRR & Ensure Prudent Level - Monitor the banks overall interest rate risk profile and ensure that the level of interest rate risk is maintained at prudent levels (at least quarterly)
28
Q

FDIC STATEMENT OF POLICY
Joint Policy Statement on Funding on Interest Rate Risk
What are the responsibilities of Senior Management?

A
  • Develop and Implement Policies and Procedures - that translate the board’s goals, objectives, and risk limits into operating standards that are well understood by bank personnel and that are consistent with the board’s intent.
  • Ensure Adherence - to the lines of authority and responsibility that the board has approved for measuring, managing, and reporting interest rate risk exposures.
  • Management Information Systems - oversee the implementation and maintenance of management information and other systems that identify, measure, monitor, and control the bank’s interest rate risk.
  • Internal Controls - establish internal controls over the IRR management process (measurement, monitoring, and reporting)
29
Q

FDIC STATEMENT OF POLICY
Joint Policy Statement on Funding on Interest Rate Risk
An effective control of interest rate risk requires a comprehensive risk management process that includes what elements:

A
  • Policies and procedures designed to control the nature and amount of interest rate risk the bank takes including those that specify risk limits and define lines of responsibilities and authority for managing risk.
  • A system for identifying and measuring interest rate risk (IRR)
  • A system for monitoring and reporting risk exposures
  • A system on internal controls, review and audit to ensure the integrity of the overall risk management process
30
Q

FDIC STATEMENT OF POLICY
Joint Policy Statement on Funding on Interest Rate Risk 2010 IRR Advisory on Interest Rate Risk Management
What are some stress testing scenarios should management include depending on IRR profile up to 300 or 400 bps?

A
  • Instantaneous Rate Shocks - instantaneous and significant changes in the level of interest rates
  • Prolonged Rate Shocks - substantial changes in rates over time (prolonged rate shocks)
  • Basis Stresses - changes in the relationships between key market rates (basis risk)
  • Yield Curve Scenarios - changes in the slope and shape of the yield curve (yield curve risk)
31
Q

FDIC STATEMENT OF POLICYJoint Policy Statement on Funding on Interest Rate Risk
What are some types of simulation models institutions can run (recommended time frame: up to two years)?

A
  • Static - based on current exposure and assume a constant balance sheet with no new growth
  • Dynamic - rely on detailed assumptions regarding changes in existing business lines, new business, and changes in management or consumer behavior. Institutions that use dynamic simulations should also run static models for comparison.
32
Q

FDIC STATEMENT OF POLICY
2006 Interagency Policy Statement on ALLL
Should management provide for credit losses on off-balance sheet credit exposures?

A

Yes - BUT allowances for off-balance sheet credit exposures should be reported separately from the ALLL and shown as an OTHER LIABILITY. However, this can be combined with ALLL for Tier 2 regulatory capital purposes subject to 1.25 percent of gross risk weighted assets.

33
Q

FDIC STATEMENT OF POLICY
2006 Interagency Policy Statement on ALLL
Is it appropriate for a bank to build up the allowance based on future possible events or hit a target ALLL number?

A

No - banks should address concerns about high levels of risk or possible future events by maintaining higher equity capital, not by increasing the ALLL. For banks with this concern, they can have a separate reserve within retained earnings designated for this contingency, but it should remain within equity capital and not the ALLL.

34
Q

FDIC STATEMENT OF POLICY
2006 Interagency Policy Statement on ALLL
When should examiners generally accept management’s estimates and not seek to adjust the ALLL?

A
  • When management has maintained effective loan review system and controls for timely problem loan identification;
  • Analyzed all significant factors affecting the portfolio in a reasonable manner;
  • Established an acceptable ALLL evaluation process that meets GAAP requirements;
  • Incorporated reasonable and properly supported assumptions, valuations, and judgments.

FDIC STATEMENTS OF POLICY (1 decks)

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