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Rules and Regs > Management > Flashcards

Management Flashcards

1
Q

What section of the FDI Act grants examiners access to bank records and employees and allows examiners to make thorough examinations?

A

Section 10 (b) (6)

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2
Q

M rating?

Critically deficient M and B performance or RM practices

A

5

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3
Q

What makes a LLL violation?

A

Only the note that puts the bank over the LLL is a violation. Until its paid in full, its a personal liability of the Ds.

SBLOC should be added to loans in calculation the LLL for an individual borrower.

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4
Q

M rating?

In general, significant risks and problems are effectively IMMC

A

2

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5
Q

For Reg O, what is a principal shareholder?

A

A person who directly or indirectly owns, controls, more than 10% of any class of voting stock

Includes shares held by immediate family

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6
Q

M rating?

level of problems and risk exposure is excessive

A

4

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7
Q

M rating?

Problems and risks are inadequately IMMC and require immediate action to preserve the soundness of the bank

A

4

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8
Q

What are transaction covered under 23B?

A

Any covered transaction with an affiliate, except transactions that involve: parent/institution, sister bank, transactions secured by US government securities or earmarked deposit

sale of securities or other assets to an affiliate

contract or lease entered into

transaction in which affiliate acts as an agent or broker

transactions that benefit the affiliate

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9
Q

What is a rebuttable presumption of control for Reg O?

A

An EO or D and they directly or indirectly own, control, or vote more than 10% of any class of voting securities, or

The person directly or indirectly, own, control, or vote more than 10% of any class of voting securities and nobody owns, controls, or has the power to vote a greater percentage of that class of securities

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10
Q

M rating?

Minor weaknesses but not material

A

2

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11
Q

23 A

Examples of a Low Quality Asset?

A

SM of Adv Classified at most recent exam

NA

PDs more than 30 days

TDRs

Foreclosed assets or repos

Non-investment grade securities.

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12
Q

What is the purpose of 23B?

A

banks and their subs can engage in any transaction allowed as long as its on terms substantially the same as comparable transactions from non-affiliates.

Absent any comps, its on terms that would be offered to non-affiliates.

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13
Q

How can banks with less than $100MM in deposits increase their aggregate lending limit? Reg O

A

The B can pass an annual resolution to increase the aggregate limit to 200% if:

The B determines its prudent, S&S, and is necessary to attract and retain Ds

The B documents its reasons, and lists the current level

The bank must meet or exceed on a fully phased-in basis, all applicable capital requirements was rated a Composite 1 or 2 at its last exam

If the bank becomes less than AC, 1, or 2, it has to shut off additional lending to insiders until its within the 100% general limit

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14
Q

For Reg O, what is a Director?

A

Members of the BOD regardless of whether they receive compensation.

Advisory D are not considered D, if:
not elected by the shareholders,
not authorized to vote on matters that come before the BOD, and
Provides only general policy advice to the B

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15
Q

What are the components of an effective MIS?

A

QQT

Quality

Quantity

Timeliness

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16
Q

What is control for Reg O?

A

A person directly or indirectly, or acting through or in concert with one or more persons:

Owns, controls, or has the power to vote 25% or more of any class of voting stock, or

Controls the election of a majority of Ds, or

Has the power to exercise controlling influence over M or policies.

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17
Q

M rating?

replacing or strengthening M or the B may be necessary

A

4

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18
Q

23A

In what instances can a bank purchase a low quality asset?

A

Bank has to commit to purchasing them prior to the downgrade and subject to an independent credit evaluation.

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19
Q

What is the rebuttable presumption of control for 23A?

A

A company or shareholder owns or controls 15% or more of the equity capital of the other company.

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20
Q

What is the definition of unimpaired capital &; surplus as it pertains to reg O?

A

T1C+ T2C + Disallowed ALLL

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21
Q

Within how many days of starting a new activity does the FHC need to notify the FRB?

A

within 30 days of starting the activity

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22
Q

Bank’s cant pay overdrafts for who? Reg O

A

EO or D of the bank, or of the bank’s affiliates

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23
Q

23A

What are the individual and aggregate limits for covered transactions? What are exemptions?

A

Individual - 10% of B Capital + Surplus

Aggregate - 20% of the B Capital + Surplus

C + S = Tier 1 + Tier 2 + amount of ALLL not included in tier 2.

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24
Q

For Reg O, what is a related interest?

A

Company controlled by that person, or a political or campaign committee that is controlled by that person or funds/services will benefit that person.

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25
Q

What are the responsibilities of management?

A

Implementation of the Board’s policies and objectives in the bank’s day to day operations.

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26
Q

What is an Insider for Reg O?

A

Executive Officer, Director, Principal Shareholder, and their Related Interests

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27
Q

What are the conditions for a BHC to enter into new activities?

A

All bank subs must be:

Well-Cap

Well-managed

Satisfactory in CRA

Grandfather provision: non-conforming activities can’t exceed 15% of consolidated annual gross revenues

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28
Q

What is the definition of control under BHC Act?

A

The company directly or indirectly or acting through one or more persons owns, controls, or has the power to vote 25% or more of any class of voting securities

Company controls the election of a majority of D

FRB determines after notice and opportunity for hearing, the company has a controlling influence over M or policies

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29
Q

What requirements are there for extension of credit to EO of the bank? Reg O

A

Only applies to bank’s EO

Promptly reported to the Board

Creditworthy and on the same terms of other non-insiders, and does not involve more than the normal risk of repayment

Preceded by the submission of a current PFS from the EO

Made subject to the condition in writing, at the option of the bank that the extension of credit will become due at any time the EO is indebted to any other bank or banks in an aggregate amount greater than the Reg O limits for EO

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30
Q

What are the primary causes of violations?

A

What Mark Needs Upstairs

Willful non-compliance

Misinterpretation

Negligence

Unfamiliarity

31
Q

What are the presumption of control for the BHC Act?

A

Company owns, controls, or hard the power to vote more than 5% of any class of voting securities AND that are common EOs or D at the bank and company AND nobody else owns, controls, or has the power to vote as much as 5% of any class of securities.

Company can vote more than 5% of any class of voting securities AND the aggregate holdings of individuals or members of their immediate families who are EO and D, together with the company holdings total 25% or more of any class of voting securities

Presumption for first two doesn’t apply when securities are held in a fiduciary capacity and company does not have sole authority to exercise voting rights.

Company has an agreement showing it exercises significant influence over M

Company enters into an agreement in which the holder’s rights in voting securities are restricted (unless its a mutual agreement amount SH granting 1st refusal)

Company controls securities that are convertible into voting securities, presumably owns or controls those securities.

32
Q

How does a BHC become a FHC?

A

Notifies the FRB

Each insured depository institution must be well capitalized and well managed

33
Q

23A

What is considered a covered transaction?

A

Loan or extension of credit to an affiliate

purchase or investment in a security issued by an affiliate

purchase of assets from an affiliate that haven’t been exempted

acceptance of securities issued by the affiliate as collateral for a loan to any person or company

issuance of a LOC on behalf of an affiliate

transaction with a third party if the proceeds of the transaction are used for the benefit of or transferred to the affiliate.

34
Q

What is the individual lending limit for Reg O?

A

Not Fully Secured: 15% of the bank’s unimpaired capital and surplus

+

Fully Secured: 10% of the bank’s unimpaired capital and surplus, if fully secured by readily marketable collateral with a MV that’s determined by reliable and continuously available price quotes at least equal to the loan

Prohibition does not apply to an extension of credit by a bank to its holding company or to other subsidiaries of the BHC

35
Q

23 A

What are ineligible types of collateral?

A

Intangible assets

Equity and Debt Securities that are issued by the bank and represent capital of the bank

Low quality assets

Guarantee of LOC

Securities issued by any affiliate

36
Q

M rating?

Strong performance and RM practices

A

1

37
Q

What are exceptions to the limits that a bank can lend to an EO? Reg O

A

Loans to finance children’s education

Loans to finance or refi the purchase, construction, maintenance, or improvement of a residence provided that: secured by first lien and the residence is owned or expected to be owned by the EO, and in case of refinance, use only the amount to repay the original loan plus closing costs

Loans fully secured by safe collateral - secured by instruments guaranteed by the US or segregated deposit.

38
Q

23 A

What transactions are exempt from quantitative limits and collateral requirement? Note: still must be made S&S standards and cant purchase low quality assets

A

Sister banks (80% ownership)

Parent institution/subsidiary transactions (80% ownership)

Purchases of non-recourse loans from an affiliate.

39
Q

What are the exceptions to the Tangible Economic Benefit Rule for Reg O?

A

Extension of credit is made on the same terms as extension of credit with non-insiders

Does not involve more than the normal risk of repayments

proceeds are used in a bona fide transaction to acquire property., goods, or services from the insider.

40
Q

BHC are prohibited from?

A

owning shares of any company that’s not a bank

engaging in activities other than banking

furnishing services to their subs that aren’t specifically authorized by the BHC Act or the Fed

41
Q

Under 23 B what type of asset purchase is prohibited?

A

The bank, as fiduciary, cant purchase any securities or other asset from any affiliate unless the purchase is permitted:

under the instrument creating the fiduciary relationship
by court order, or
by law of the jurisdiction governing the fiduciary relationship.

42
Q

What are the key components of IRC

A 
Control environment
Risk Assessment
Control Activities
Information and Communication
Monitoring
43
Q

What is the limit on the amount that a bank can lend to an executive officer? Reg O

A

Higher of 2.5% of the bank’s unimpaired capital and surplus or $25K, but in no event more than $100K.

44
Q

M rating?

Haven’t demonstrated the ability to correct problems and implement appropriate RM practices

A

5

45
Q

According to the Statement Concerning the Responsibilities of D and O, what are the most important responsibilities of a Director?

A

To act loyal and with care

46
Q

What type of companies are excluded from being an affiliate for 23A?

A

Most bank subs - except insured depository institutions (banks still considered affiliates)

Companies that hold bank premises

Companies that engage in safe deposit services

Companies that hold U.S. Government securities, or securities guaranteed by US govt securities

Companies that were acquired by debts previously contracted.

47
Q

M rating?

Capabilities of the B may be insufficient

A

3

48
Q

M rating?

Problems and risks are inadequately IMMC and now threaten viability

A

5

49
Q

What is considered an affiliate under 23B?

A

Same as 23A, except

Banks aren’t affiliates under 23B

Companies engaged in:

Premises
Safe deposit business
Holding obligations of the US or its agencies or obligations fully guaranteed by them
Company where control results from DPC

50
Q

What are the responsibilities of the Board?

A

Federal Employee Program

Formulation of sound policies and objectives

Effective supervision of bank affairs

Promotion of bank welfare

51
Q

M rating?

Problems and significant risks may be inadequately IMMC.

A

3

52
Q

What are general restrictions imposed by Reg O?

A

Extension of credit should be on the same terms as non-insiders and doesn’t involve more than normal risk of repayment

Restrictions don’t apply to a benefit or comp program that’s widely available to all employees and doesn’t give preference to the insider

Prior B approval is needed when the aggregate extension exceeds the greater of $25M or 5% of unimpaired capital + surplus; must get B approval for anything over $500M

53
Q

What are exceptions to the aggregate lending limit? Reg O

A

Loans that are secured by bonds, notes, or T-bills of the U.S government; anything guaranteed by the U.S. government, or segregated deposits at the bank.

54
Q

M rating?

Replacing or strengthening M or the B is necessary

A

5

55
Q

When are overdrafts for EO or D ok? Reg O

A

EO or D has a written, pre-authorized, IB extension of credit plan, or transfer agreement

OD in an aggregate amount of $1K or less provided that the account is not overdrawn for more than 5 business days and charges the same fee as any other bank customer.

56
Q

23 A

What must a bank do when collateral has amortized or been retired and is below the required collateral min requirements?

A

Replace the collateral or add additional collateral to keep the percentage of required at the inception of the collateral.

57
Q

M Rating?

Risks are consistently and effectively IMMC

A

1

58
Q

What is the aggregate lending limit for Reg O?

A

100% of unimpaired capital and surplus

59
Q

M rating?

Satisfactory M and B performance

A

2

60
Q

What are the concerns of a one man bank?

A

May deprive the bank of competent management

Harder for regulators to address deficiencies

61
Q

For Reg O, what is an executive officer?

A

Person who has the authority to or who participates in major policy functions

COB, Pres, any VP, Cashier, Secretary, and Treasurer

Can be excluded by annual resolution of the B if the person doesn’t participate in major policy making

Can be additional people if they do participate in major policy-making

62
Q

What companies are not considered HCs?

A

Industrial Loan Co

Savings banks

Companies that are majority-owned by the U.S. govt

CEBA credit card banks

63
Q

What is considered an affiliate for 23A?

A

Parent Company

Companies under common control by a parent company

Companies under common control

Companies with interlocking directorates

64
Q

What are the benefits of an external audit?

A

Helps BOD meet their fiduciary responsibilities and provide greater assurance that financial reports are accurate and complete

65
Q

M rating?

M and B performance need improvement or RM practices that are less than satisfactory

A

3

66
Q

When is permission given to the FDIC to communicate with bank’s external auditors?

A

Once an institution notifies the FDIC of the accountant’s name or the accounting firm is engaged. (by letter or submitting a copy of the audit report).

67
Q

M rating?

Deficient M and B performance or RM practices that are inadequate

A

4

68
Q

M rating?

Promptly and successfully address existing and potential problems and risks

A

1

69
Q

What are the management evaluation factors?

A

Los Angeles City Absolutely Appreciates Citizens Roaming or Driving West of Rodeo Drive

Level and quality of oversight and support

Ability to adapt to changing business conditions

Conformance with internal policies

Accuracy, timeliness, and effectiveness of MIS

Adequacy of audits and internal controls

Compliance with laws and regulations

Responsiveness to recommendations

Depth and Succession

Willingness to serve community

Overall performance and risk profile

Reasonableness of compensation policies and avoidance of self-dealing

Dominant individuals

70
Q

What is the definition of control for 23A?

A

Company or shareholder directly or indirectly owns, controls, or votes 25% or more of any class of voting securities

Controls the election of a majority of D

FRB determines after notice and opportunity for hearing, exercises a controlling influence over the management or policies of other company

not considered controlled if shares are held under a fiduciary capacity except in a trust situation

71
Q

23A

What are the collateral requirements?

A

100% - secured by US government securities/agencies, cash

110% - secured by obligations of a state or political subdivision

120% - other type of debt instruments including receivables

130% - stock, lease, RE, personal property

72
Q

What is the most important characteristic of a Director?

A

Personal Integrity

73
Q

Directors are held liable for?

A

Not Until Fred Makes a Basket

Negligence resulting in loss: failure to exercise the degree of care

Ultra Vires Acts: actions beyond the powers of a corporation

Fraud: intentional deception resulting in injury

Misappropriation of funds

Breach of Trust

74
Q

What is a FHC?

A

company that can engage in any activity and may acquire shares of any company engaged in a financial activity

Rules and Regs (8 decks)

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