Safety & Soundness Lesson

Question 1

Reflects the nature, complexity, and volume of the activities giving rise to the risk in question.

Answer 1

Inherent Risk

Question 2

This risk arises from the potential that a borrower or counterparty will fail to perform on an obligation.

Answer 2

Credit Risk

Question 3

The term for the potential that an institution will be unable to meet its obligations as they come due.

Answer 3

Liquidity Risk

Question 4

Which of the following is not considered a key element of an effective risk management system?

Answer 4

D.

A. Internal controls
B. Management information systems
C. Policies, procedures, and limits
D. An individual designated for coordinating and monitoring risk management

Question 5

Which of the following is responsible for assessing the bank’s loans?

Answer 5

Loan in charge

Question 6

Which role manages all aspects of an examination/inspection?

Answer 6

Examiner in charge

Question 7

A $205 million bank that currently has a “3” CAMELS rating would receive a full scope, on-site examination at least every:

Answer 7

Because of its size and current ratings, this bank will receive a full scope, on-site examination every 12 months.

Question 8

The Commercial Bank Examination Manual provides specific guidelines for all of the following, except:

Answer 8

B
A. Determining the scope of an examination.
B. Assessing compliance with laws and regulations.
C. Evaluating the work performed by internal and external auditors.
D. Preparing workpapers that support the examination.

Question 9

Guidance for assessing a bank’s dividend policies and procedures may be found in which section of the Commercial Bank Examination Manual?

Answer 9

4000 other examination areas

Specifically, dividend policies and procedures are found in Section 4070

Question 10

From a public policy standpoint, the Fed is concerned about a BHC acting as a source of strength for its subsidiary bank because:

Answer 10

The Fed is concerned about a BHC acting as a source of strength for its subsidiary bank because the bank has access to federally insured deposits. This is described in Section 2010 of the Bank Holding Company Supervision Manual.

Question 11

A $130 million, complex BHC that currently has a “2” RFI/C (D) rating would receive a full scope, on-site inspection every:

Answer 11

24 months

Question 12

6 risks

Answer 12

Credit risk 
Market risk 
Liquidity risk 
Operational risk 
Legal risk 
Reputational risk

Question 13

4 risk management process

Answer 13

Board and senior management oversight;
Policies, procedures, and limits;
Management information systems; and
Internal controls.

Question 14

Mazola Bank Holding Company reports $60 million in consolidated assets. What report(s) is the BHC required to file?

Answer 14

The BHC is required to file an FR Y-9SP because it has a consolidated asset size of less than $150 million.

Question 15

How frequently does the BHC need to file?

Answer 15

semi annual

Question 16

Foreign currency and coin should be converted to U.S. dollar equivalents as of the report date.

Answer 16

true - Foreign currency and coin should be converted to U.S. dollar equivalents as of the report date.

Question 17

What are the applicable date(s) for the report(s) the BHC is required to file?

Answer 17

6/30 and 12/31

Question 18

There are four call report versions. How does the bank determine which one to use?

Answer 18

The bank falls into one of four categories depending on its asset size AND whether it has any foreign offices.

Question 19

How many directors must attest to the correctness of the call report for a state nonmember bank?

Answer 19

2 directors. State nonmember banks require two signatures. (The Federal Reserve and National banks require three signatures.)

Question 20

How many days does the bank have to complete and file their reports?

Answer 20

A bank has 30 days after the filing date to complete and file their reports.

Question 21

Under what circumstances may a bank request and receive an extension of filing?

Answer 21

Banks with more than one foreign office, other than a shell branch or an IBF may receive an extension of filing. If a bank uses any of the additional days it will be required to submit its report electronically.

Question 22

Which call report version would Mazola Bank file? only domestic

Answer 22

Mazola Bank would not file FFIEC 031 because it does not have foreign offices.

Question 23

Income from installment loans, amortization of premiums paid on investment securities, income taxes and depreciation on premises & fixed assets are accounts that must always be reported on an accrual basis.

Answer 23

True. Banks may report certain accounts on a cash basis if the result would not differ significantly from those obtained using an accrual basis. However, the four accounts listed above must always be reported on an accrual basis.

Question 24

When a bank assumes the first lien on property on which it has foreclosed, the bank records only the amount of its own loan less the first mortgage in OREO.

Answer 24

When the bank assumes the first lien on property on which it has foreclosed, the bank records the amount of its own loan.

Question 25

An overdrawn account at a correspondent bank is considered a borrowing and is shown as “Other borrowed money.”

Answer 25

True.

An overdrawn account at a correspondent bank is considered a borrowing and is shown as “Other borrowed money.”

Question 26

A Reserve for Contingencies account is included in the “Undivided Profits and Capital Reserves” line.

Answer 26

True. A Reserve for Contingencies account is included in the “Undivided Profits and Capital Reserves” line.

Question 27

Choose the appropriate category for reporting purposes for buildings previously used for bank premises.

Answer 27

OREO not premises

A building previously used for bank premises is categorized as Other Real Estate Owned.

Question 28

Choose the appropriate category for reporting purposes for a $300,000 nonrated industrial development bond which the bank has not reviewed for loan/security characteristics.

Answer 28

Loan, not security or cash

This nonrated bond would be classified as Loans

Question 29

Choose the appropriate category for reporting purposes for a cash-surrender value of a life insurance policy for which the bank is the beneficiary.

Answer 29

Other asset

Question 30

Choose the appropriate category for reporting purposes for unposted debits that have not been charged to the DDA general ledger account.

Answer 30

Cash and due from

Unposted debits that have not been charged to the DDA general ledger account are classified as cash and balances due from depository institutions.