Rd. 2 Flashcards
Calculate the liability of a controlling company if one of their banks has a CRP?
Lesser of 5% of TA at the time bank became UC or the amount necessary to bring the bank to AC levels.
For a CUC bank, what is tangible equity?
T1C + outstanding PPS including surplus not included in T1C
According to Section 38 of the FDI Act, what are provisions applicable to all institutions?
Capital Distributions and Management Fees (any person having control), if after making the payment, would make the institution UC.
According to Section 38 of the FDI Act, what are provisions applicable to UC institutions?
Closely monitoring
Submit CRP within 45 days of becoming UC
Prior approval for expansion
Restriction of Asset Growth
According to Section 38 of the FDI Act, what are provisions applicable to SUC and UC institution that fail to submit or implement a CRP?
8R - PI
Recapitalize
Restricting transactions with affiliates
Restricting interest rates paid
Restricting asset growth
Restricting Activities
Requiring prior approval for capital distributions by BHC
Requiring Divestiture
Requiring other actions as determined by regulators
Prohibiting deposits from correspondent banks
Improving management by:
New Directors
Dismissing Directors or Senior EO (180 days or more in position)
New Senior EO
According to Section 38 of FDI Act, what provisions are applicable to CUC institutions?
Activities restricted
Payments on subordinated debt (60 days after becoming CUC)
Conservatorship, receivership (90 days after becoming CUC)
What kind of activities are prohibited by CUC banks?
A- EEE- MPP
Amending the institution’s charter or by laws
Entering into any material transaction other than BAU
Extending credit for any highly leveraged transaction
Engaging in any covered transaction
Making material change in accounting methods
Paying excessive compensation or bonuses
Paying interest on new or renewed liabilities that would increased COF to a level significantly exceeding the rates paid in institution’s normal market area
What happens when a bank gets a subpoena for a SAR?
The bank shall decline to produce the SAR or provide info and notify the FDIC RO.
When and how does a bank file for a Phase I or Phase II exemption for CTR?
File a one-time Designation of Exempt Person (DOEP) report within 30 days AFTER the first transaction in currency the bank plans to exempt. Filed through the BSA e-filing system (US Treasury)
CTR- Does a bank need to file a DOEP for all Phase I customers?
No. Banks do not need to file a DOEP for banks, federal, state, or local governments.
What happens to duration when?
Coupon increases
Yield increases
Payment frequency increases
principal amortization increases
maturity decreases
When coupon, yield, payment frequency, principal amortization increase, duration decreases.
maturity decreases = duration decreases.
Value a mutual fund should be carried at?
AFS or trading. Like equity securities.
Reg U filing requirement?
Credit secured by margin stock in an amount greater than $100M. Max LTV of 50%.
Negligence on the part of Director?
Failure to exercise the degree of care prudent individuals would exercise under similar circumstances, and/or noncompliance with law, either or both of which cause loss or injury to the bank,
What can lead to a category II contingent liability?
4C - LTR
Co-signed items and other non-ledger accounts
Customer safekeeping (safe deposit boxes)
Collection items
Co-signed items (travelers checks, U.S. savings bond)
Litigation
Trust activities
reserve premium accounts
Part 364 Appendix B - Overseeing Service Provider Arrangement. What should an institution do?
Exercise due diligence in selecting service providers
Require service providers by contract to implement appropriate measures designed to meet the objectives of these guidelines
Monitor service provider to confirm that they have satisfied their obligations. Monitoring should include review audits, summaries of test results, other evaluation of its service providers.
When must a bank notify the FDIC about the existence of s service provider relationship?
Within 30 days after making a contract or the performance of the service, earliest.
NNCFD?
Noncore liabilities less short term investments divided by LTA.
Noncore liabilities: CD over $250M Borrowed money Foreign office deposits Securities sold under agreement to repurchase FFP Insured brokered deposits up to $250M
Short term investments
IBBB
FFS
Securities purchased under agreements to resell
Debt securities with a remaining maturity of one year or less
LTA: Net loans and leases Loans and leases HFS HTM + AFS less debt securities with a remaining maturity one year of less OREO (not investment
Per Part 309.6, who can disclose contents of the ROE?
Director of the Corporations Division or designee
Can a state ROE be used to support a CMP recommendation?
Generally not. However, the RD does have discretion to use it if it is deemed adequate.
Different types of step-up bonds?
European - option may only be exercised on a specified date
American - option may be exercised at any time
Bermudian - option may be exercised on interest payment date.
Value of step up bond when rates change?
Declining: reduced price appreciation
Rising: Depreciate in value as the coupon rate will be increasing by less that market rate.
Moves like a bond. Rates rise, prices decline.
Dual index note?
Security whose coupon is tied to the spread between two indices.
Can also spread between two different maturities of the same index.
What are the factors to be considered for Deposit insurance? Section 6 of FDI Act?
ACC-FF-GR
Adequacy of the depository capital structure (8% T1L for first 3 years; initial capital of $2MM net of any pre-opening expenses).
Convenience and needs of the community
Corporate powers consistent with the FDI Act
Financial history and condition
Future earnings prospects
General character and fitness of management
Risk to the DIF
Where are Category II Contingent Liabilities discussed in the ROE?
In the ECC Page under the component, CMEL, that is significantly affected.
Controls an institution should implement for Identity Theft?
Preventive measure to safeguard customer info
Place access controls on customer info systems and conduct background checks for employees who are authorized to access customer info
Develop and implement a risk-based response program to address incidents of unauthorized access to customer information systems.
Troubled Condition?
Composite 4 or 5
Subject to termination or suspension of insurance
CD or WA to improve condition or FDIC/State contemplates the issuance of an order to improve condition
informed in writing by FDIC
IT RMP?
used for conducting IT exams at FDIC supervised institutions
Only composite rating
embedded in S&S ROE
Who may authorize a separate cover for IT exam? Why separate cover?
RD or designee may authorize for separate IT cover
Happens in 2 situations:
(1) Serious deficiencies are identified that warrant enforcement actions, or
(2) Under large-bank examination
What does ORE include?
All real estate acquired through foreclosure or deed in lieu of foreclosure, even if the bank has not yet received title to the property.
Real estate collateral in a bank’s possession, regardless of whether formal foreclosure proceedings have been initiated
Property originally acquired for future expansion but no longer intended for that purpose
Foreclosed RE accounted for under the deposit method of accounting
Responsibilities of Directors?
CAP-HOA-MAPS
Corporate Planning
Appointing, Dismissing at Pleasure, and Defining the Duties of Officers
Personnel Administration
Honestly and Diligently Administering the affairs of the bank
Observance of applicable laws
Avoidance of Self-Servicing Practices
MIA
Appropriate IC systems and adequate auditing program
Paying Such Dividends as may be properly paid
Supervision by Directors
Resp from D
setting future direction of bank
Corporate Planning
Resp from D
D select and appoint executive officers who are qualified. Also, D dispense with the services of officers who prove unable to meet reasonable standards of executive ability and efficiency.
Appointing, Dismissing at Pleasure, and Defining the Duties of Officers
Resp from D
recruiting, training, and personnel activities. Designated org structure, detailed position description
Personnel Adminstration
Resp from D
D has responsibility of conducting the affairs of the bank. D must periodically examine the system of administration they have established to see that is functions properly
Honestly and Diligently Administering the affairs of the bank
Resp from D
- D ensure M is cognizant of applicable laws and regulations; develop a system to effect and monitor compliance (training); and, when violations do occur, make correction as quickly as possible.
D should make certain that compliance with all laws and regulations receives high priority and violations are not knowingly committed by themselves or anyone the bank employs
Observance of Applicable laws
Resp from D?
. Place performance of their duties above personal concerns
Avoiding self-servicing practices
Resp from D
D responsibility of maintaining an AC bank, and once this responsibility has been satisfied, the payment of dividends can and should receive consideration
Paying such dividends as may properly be paid
Resp from D
M responsible for developing and implementing an information system that facilitates managerial activities.
MIS
Resp from D?
ensure that policies are being implemented and adhered to and its objectives achieved.
Supervision by Directors
When is a written agreement issued?
Normally for a bank whose problems are limited to a capital deficiency that has not been caused by U/U practice
Issued when Tier 1 Leverage is below AC and no section 8 enforcement action or capital director is to be taken
Who can the FDIC only issue Capital Directives to?
State non-member banks
Examples of items not considered other borrowed money?
FFP and securities sold under agreements to repurchase
Liability for short positions
Subordinated notes and debentures.
How do banks report trust preferred securities?
as debt securities.
What doesn’t a D&O bond protect?
Criminal or dishonest acts
Situations when the involved person obtained personal gain
Conflict of interest
Income Tax Forgiveness
When is income tax not collected considered a capital injection?
If a parent company requires a sub institution to pay less than the full amount of the income tax liability owned and the parents will not later require the institution to pay the remainder of the liability.
Amount of unremitted liability can be accounted for as a capital contribution by parent.
A parent cannot make a capital contribution to a subsidiary by “forgiving” some or all of the subs deferred tax liability
Funds management reports should include?
Bank’s liquidity position
Risk Exposures
Level of compliance with internal risk limits
Info regarding asset yields, liability costs, NIM, and budget variances.
Risks with letters of credit?
Credit Risk - possibility of default on the part of the account party
Funding Risk - potential inability of the bank to fund a large draw
What is double leveraging?
When the parent company issues long-term debt to fund equity capital in the subs.
Ratio of double leverage?
Equity of subs divided by the equity of the holding company.
Over 1.
Characteristics of goodwill
Must be tested for impairment annually
Cannot reverse previously recognized impairment
Cannot sell to holding company.
What documents can a bank provide their external auditor with?
7 things
Call report
ROE
Correspondence from regulator
MOU
Written agreement
Section 8 action
CMP
Weaknesses with Gap analysis?
AGG-MD
Assumes parallel rate movements in A and L
Generally captures only repricing risk
Generally does not adequately capture embedded options
May not identify intra-period repricing risks
Does not measure changes in EVE
When to include the Assets with credit data or collateral documentation exception page in the ROE?
Documentation exceptions are excessive and comments on the ECC page or RMA page are appropriate
In certain circumstances, ECC or RMA page comments may be appropriate if excessive deficiencies were corrected during the exam and the page is not included in the ROE.
Part 364 Appendix A
What items should an internal audit system contain?
7 things
Adequate monitoring of the system of IC
Independence and objectivity
Qualified person
Adequate testing and review of information systems
Adequate documentation of tests and findings and any corrective actions
Verification and review of management’s actions to address material weaknesses
Review by AC or BOD of the effectiveness of the internal audit system.
For a security program, what does the SO report annually to the Board?
The implementation, administration, and effectiveness of the SP.
BHC ratios?
Fixed charge coverage ratio (2x or better)
Double Leverage ratio
CF Match Ratio - severe test of parent cash availability to meet interest expenses, operating expenses, taxes, dividends, and debt maturities. Ratio of 1.10
Risks from swaps?
MOC-LL
Market risk - effect on net economic value
Operating Risk
Credit Risk - default by counterparty
Liquidity Risk
Legal Risk
Reaffirmations on BK?
Agreement must be signed before the discharge is granted
A hearing is held and the BK judge informs the borrower there is no requirement to reaffirm
Debtor has the right to rescind the reaffirmation if such action is taken within 30 days.
Who gives consent for trust powers? Who grants them?
FDIC gives consent to exercise trust powers
State grants trust powers
Parallel-Owned Banking Org?
Exists when a bank in the U.S. and a foreign bank are controlled, by an individual, family, or group of persons.
Control- own 10 percent or more of any class of voting shares.
Purpose of Internal Audit?
Substantially lessen financial and operational risks
Helps Directors and officers evaluate the adequacy of IC systems
Assess the effectiveness of RM
Provide info about risks and controls so management can promptly address any identified weaknesses
When is an 8(g) order apply?
Section 8(g) suspends an IAP from office or prohibits that individual from participating in the conduct of the bank’s affairs if
(1) Charged by US Attorney of participation in a crime involving dishonesty or breach of trust which is punishable by imprisonment for a term exceeding one year under state of federal law, and
(2) if continued service by the individual may pose a threat to the interests of the bank’s depositors or threaten public confidence
Past due definition?
Loans 30 days PD. For installment credit, 2 payments past due.
Short tem asset?
Sum of
IBBB
FFS
Securities purchased under agreements to resell
Debt securities with a remaining maturity of one year or less
Loans and leases with a remaining maturity of one year or less
What is not considered a golden parachute?
Payments under a bona-fide deferred comp plan
Payments under a non-discriminatory severance payment plan
Payment under a qualified pension or retirement plan
Payments pursuant to an employee welfare benefit plan
Payments made by reason of termination caused by death or disability
Payments required by state statute or foreign law
