FDI ACT

Question 1

FDI ACT - SECTION 2

How many members on the FDIC’s Board?

Answer 1

5

Question 2

FDI ACT - SECTION 2

Who are the members that make up the FDIC’s Board?

Answer 2

• Comptroller of the Currency
• Director of Consumer Financial Protection Bureau
• 3 appointed by the President, by and with the advice of the Senate, 1 of whom shall have State bank supervisory experience. (ACTING OFFICIALS MAY SERVE)

Question 3

FDI ACT - SECTION 2

Regarding the FDIC Board, are there any restrictions on political affiliations?

Answer 3

No more than 3 Board members from the same political party.

Question 4

FDI ACT - SECTION 2

What are the terms for the FDIC’s Chairman & Board Members?

Answer 4

• Chairman - 5 years

* Other Board Members - 6 years

Question 5

FDI ACT - SECTION 2

How long are the FDIC’s Board terms for interim appointments ?

Answer 5

• Until end of interim term

Question 6

FDI ACT - SECTION 2

When can a FDIC board member go back into banking?

Answer 6

• 2-year period beginning on the date such member ceases to serve on the BOD;
• Exception: Board Member serves full term, allowed to enter right away once completion of term

Question 7

FDI ACT - SECTION 2

What are the restrictions for FDIC Board members during service?

Answer 7

Restrictions are:
• No member of the BOD may be an officer or director of any insured depository institution, depository institution holding company, Federal Reserve bank, or Federal home loan bank;
• No member of the BOD may hold stock in any insured depository institution or depository institution holding company

Question 8

FDI ACT - SECTION 7

What does term “risk-based assessment system” mean?

Answer 8

A system for calculating a depository institution’s assessment based on the following:
• Probability that the DIF will incur a loss with respect to the institution, taking into consideration to the risks
> Categories and concentrations of assets,
> Categories and concentrations of liabilities, both insured and uninsured, contingent and non-contingent, and
> any other factors the Corporation determines are relevant to assessing such probability
• The likely amount of any such loss;
• The revenue needs/requirements of the DIF

Question 9

FDI ACT - SECTION 7

What is the FDIC’s reserve ratio?

Answer 9

• It establishes minimum and maximum levels for the FDIC’s deposit insurance fund.
• The minimum ratio may not be less than 1.35% of estimated insured deposits.
• Dodd-Frank establishes that the FDIC will suspend dividend payments when the reserve ratio is at 1.5%.

Question 10

FDI ACT - SECTION 7

What information should a change of control notice contain?

Answer 10

• The identity, personal history,
&raquo_space; Business background and experience of each person by whom or on whose behalf the acquisition is to be made;
&raquo_space; Material business activities and affiliations during the past 5 years; and
&raquo_space; Any pending legal proceedings
• Statement of the assets and liabilities,
&raquo_space; Together with related statement of income for each of the five years immediately preceding the date of the notice, as of the date not more than 90 days prior to the date of the filing of the notice;
• Terms and conditions of the proposed acquisition;
• Identity, source, and amount of funds used in making the acquisition;
• Any plans or proposals which any acquiring party to liquidate, sell assets, merge, or make any other major change in business / management;
• Identification of person employed to assist in the acquisition and a brief description of the terms of employment, retainer, or arrangement for compensation;
• Copies of all invitations, tenders, or advertisements making a tender offer to stockholders for purchase of their stock;
• Additional information relevant as the appropriate Federal banking agency may require

Question 11

FDI ACT - SECTION 7

When does a change in control notice have to be sent?

Answer 11

60 days prior to the proposed acquisition

Question 12

FDI ACT - SECTION 7

What is the definition of control for this section?

Answer 12

Definition of control for this section is power to directly or indirectly, to direct management or policies of the bank or vote 25% or more of any class of voting security.

Question 13

FDI ACT SECTION - 8(a)

What are the grounds for insurance termination?

Answer 13

• Bank has engaged in unsafe or unsound practice or conditions exist;
• Bank is in an unsafe or unsound condition to continue operations as an insurance institution; or
• Violations of laws, rules, regulation, orders, or any written conditions

Question 14

FDI ACT SECTION - 8(a)

What is the status of deposits held by an institution where insurance has been terminated?

Answer 14

Temporary deposit insurance is in effect for a period of 6 months up to 2 years at the discretion of the FDIC’s Board of Directors and applies only to existing deposits (less withdrawals) at the time of termination, provided the bank continues to pay assessments.

Question 15

FDI ACT SECTION - 8(a)

What is involved in a judicial review?

Answer 15

Before the close of the 10th day period beginning on the date any temporary order has been served, the depository institution may apply to the courts for an injunction setting aside, limiting, or suspending the enforcement, operation, or effectiveness of such order, and the court shall have jurisdiction to issue such an injunction.

Question 16

FDI ACT SECTION - 8(b)

What is the purpose of a cease-and-desist order?

Answer 16

• The opinion of the appropriate Federal banking agency has reasonable cause to believe that the bank is about to engage in unsafe or unsound practice, or is violating or about to violate a law, rule or regulation, or any condition imposed in writing by a Federal banking agency.
• Issued to prevent and/or correct unsafe or unsound practices and/or violations before developing conditions become more serious.

Question 17

FDI ACT SECTION - 8(b)

What does a cease-and-desist require?

Answer 17

• An order to take affirmative action to correct or remedy any conditions resulting from any violation or practice such as:
&raquo_space; Restrict growth of the bank
&raquo_space; Dispose of any loan or asset involved
&raquo_space; Rescind agreements or contracts
&raquo_space; Employ qualified officers or employees (who may be subject to approval by the appropriate banking agency)
&raquo_space; take such other action as the banking agency determines to be appropriate

Question 18

FDI ACT SECTION - 8(b)

What is the main support documentation for the cease-and-desist? Who can the order be issued against?

Answer 18

• May issues against bank and IAPs;
• ROE is the main support documentation for an 8(b)
• Order becomes effective 30 days after it has been served with time periods for compliance varying from 30 days to 12 months or more.

Question 19

FDI ACT SECTION - 8(c)

What is the purpose of a temporary cease-and-desist order?

Answer 19

An “Emergency” action to eliminate the need for time-consuming administrative hearings to prevent action likely to cause insolvency, significant dissipation of assets or earning of the bank, is likely to weaken the condition of the bank, or prejudice the depositors of the bank.

Question 20

FDI ACT SECTION - 8(c)

When is the temporary cease-and-desist order effective?

Answer 20

Temporary C&D is effective upon the bank being served the order, and the bank or IAP has 10 days after service to petition US District Course for an injunction.

Question 21

FDI ACT SECTION - 8(e)

What is the purpose of Section 8(e) - Removal and Prohibition Authority?

Answer 21

Purpose is to provide the FDIC with the power and authority to remove any IAP from office or prohibit any further participation in affairs of bank.

Question 22

FDI ACT SECTION - 8(e)

Under what circumstances would a Section 8(e) be enforced?

Answer 22

When the appropriate Federal banking agency determines that an officer, director, or IAP has:
• Violated any law or regulation, cease-and-desist order which has become final, or any condition imposed in writing by a Federal banking agency;
• Engaged or participated in any unsafe or unsound practice in connection with any bank
• Committed or engaged in any act, omission, or practice which constitutes a breach of fiduciary duty such that the violation, practice or breach that the bank has or will suffer financial loss or other damage

Question 23

FDI ACT SECTION - 8(e)
The removal and prohibition authority state the Three-Part Test to determine that any IDP party has directly or indirectly met what conditions? Some part or ALL of the conditions must be met.

Answer 23

• Did IAP violate law, engages in unsafe & unsound practice, or manner counter to fiduciary duty?
• Did IAP cause bank to suffer / will suffer loss, prejudice depositors, or receive financial gain?
• Does such violation / breach involve personal dishonesty or demonstrate willful / continuing disregard for bank?

Question 24

FDI ACT SECTION - 8(g)

What is the purpose of Section 8(g) of the FDI Act?

Answer 24

Used when an IAP is the subject of any information, indictment, or complaint involving the commission of participation in:
• A crime involving dishonesty or breach of trust, which is punishable by imprisonment for a term exceeding one year;
• If continued service may pose a threat to the interests of the depositors;
• Or may threaten to impair the public confidence in the bank

Question 25

FDI ACT SECTION - 8(g) | What is the effective period for Section 8(g) of the FDI Act?

Answer 25

A suspension or prohibition shall remain in effect until the information, indictment, or complaint is finally disposed of or until the order is terminated.

Question 26

FDI ACT SECTION - 8(i) | What is the purpose of FDI Act - Section 8(i)?

Answer 26

The purpose is to punish and/or sanction (IAP) violators and deter future violations (not to affect remedial action).

Question 27

FDI ACT SECTION - 8(i) | Describe the "First Tier" for CMPs?

Answer 27

Any bank which, and any IAP party who violates any: • Laws or regulations; • Final orders or temporary orders issued; • Condition imposed in writing by the Federal banking agency in connection with any action on any application, notice or other request by the IDPShall pay a CMP of not more than $5,000 each day during which such violation continues.

Question 28

FDI ACT SECTION - 8(i) | Describe the "Second Tier" for CMPs?

Answer 28

In addition to the first Tier, any bank which, and any IAP party who: • Commits any violation described in First Tier; • Recklessly engages in an unsafe or unsound practice in conducting the affairs of the bank; • Breaches any fiduciary duty that is part of a pattern of misconduct causing or is likely to cause more than a minimal loss to the bank or results in pecuniary gain or other benefit; • Shall pay a CMP of not more than $25,000 each day during which such violation, practice or breach continues.

Question 29

FDI ACT SECTION - 8(i) | Describe the "Third Tier" for CMPs?

Answer 29

In addition to the first and second Tiers, any bank which, and any IAP party who knowingly: • Commits any violation described in the First Tier; • Engages in an unsafe or unsound practice in conducting the affairs of the bank; • Breaches any fiduciary duty and knowingly or recklessly causes a substantial loss to the bank or a substantial pecuniary gain or other benefit to such party by reason of such violation, practice, or breach shall pay a CMP; • If an IAP, CMP amount can not exceed $1,000,000; • If a depository institution, an amount not to exceed the lesser of $1,375,000, or 1% of the TA of the bank

Question 30

FDI ACT SECTION - 8(i) | What is an unsafe and unsound practice?

Answer 30

Any action, or lack of action, which is contrary to generally accepted standards of prudent operation, the possible consequences of which, if continued, would result in abnormal risk of loss or damage to an institution, its shareholders, or the insurance fund.

Question 31

FDI ACT SECTION - 8(i) | What are some examples of unsafe and unsound conditions?

Answer 31

* There is no exact definition of unsafe and unsound conditions. * Generally refers to any action that threatens the continued viability of the bank. * Examples include maintenance of an unduly low net interest margin; excessive overhead expenses; excessive volume of loans subject to adverse classification; excessive net loan losses; excessive volume of overdue loans; excessive volume of nonearning assets; and excessive large liability dependence.

Question 32

FDI ACT SECTION - 8(s) | What is the purpose for Section 8(s) of the FDI Act?

Answer 32

The purpose is to issue a temporary cease-and-desist order for BSA monetary recordkeeping.

Question 33

FDI ACT - SECTION 11 | When a bank goes into receivership, how long does a creditor have to submit proof of claim?

Answer 33

90 days from first published notice.

Question 34

FDI ACT - SECTION 11 The amounts realized from the liquidation or other resolution of any insured bank by any receiver appointed for the bank shall be distributed to pay claims in what order of priority?

Answer 34

fa

Question 35

FDI ACT - SECTION 11 | What does FSLIC stand for?

Answer 35

Federal Savings and Loan Insurance Corporation

Question 36

FDI ACT - SECTION 14 | Section 14 allows the FDIC to borrow up to what amount from the U.S. Treasury for insurance purposes?

Answer 36

Not exceeding in aggregate $100 billion outstanding at any one time

Question 37

``` FDI ACT - SECTION 18 Section 18(h) of the FDI Act, gives the FDIC the power to assess penalties - explain? ```

Answer 37

Any insured institution which fails or refuses to pay any assessment shall be subject to a penalty in an amount of not more than 1% of the amount of the assessment due for each day that such violation continues.

Question 38

FDI ACT - SECTION 18 | What is the special rule for small assessment amounts?

Answer 38

If the assessment that the bank fails or refuses to pay is less than $10,000 at the time of such failure or refusal, the amount of the penalty shall not exceed $100 for each day that such violation continues.

Question 39

FDI ACT - SECTION 18 | What is the purpose of Section 18(j) of the FDI Act?

Answer 39

Applicability to Federal Reserve Act, subsections (g) and (h) of Section 22 (Reg O) & Sections 23A and 23B to nonmember banksNote: Section 18(j)(2) does not apply to any foreign bank in the US, but does apply to the insured branch itself

Question 40

``` FDI ACT - SECTION 18 Section 22(g) of the Federal Reserve Act (Reg. O) – Loans to Executive Officers Banks and Section 22(h) Extensions of Credit to Executive Officers, Directors and Principal Shareholders of member banks and Section 23A and 23B of Federal Reserve Act – are incorporated by which Act? ```

Answer 40

* Section 18(j)(1)(A) - Sections 23A and 23B, of the Federal Reserve Act shall apply with respect to every nonmember insured bank in the same manner and to the same extent as if the nonmember insured bank were a member bank; * Section 18(j)(2) - Subsections (g) and (h) of Section 22 of the Federal Reserve Act shall apply with respect to every nonmember insured bank in the same manner and to the same extent as if the nonmember insured bank were a member bank.

Question 41

FDI ACT - SECTION 18 | Why is Section 22(g) and 22(h) important?

Answer 41

Aimed at prevention and detection of insider abuse, a common characteristic of failed or failing banks

Question 42

FDI ACT - SECTION 19 | What is the purpose of Section 19 of the FDI Act?

Answer 42

Section 19 prohibits, without prior written consent from the FDIC, a person convicted of any criminal offenses from involvement as an IAP, if those convictions involve: • Dishonesty; • Breach of trust; • Money laundering; • Person entered into a pre-trial diversion or similar program in connection with a prosecution for such offense

Question 43

FDI ACT - SECTION 19 | What is the convicted IAP prohibited from specifically?

Answer 43

A convicted IAP is prohibited from: • Becoming or continuing as an IAP with respect to any bank; • Own or control, directly or indirectly, any bank; or • Otherwise participate, directly or indirectly, in the conduct of the affairs of any bank

Question 44

FDI ACT - SECTION 19 | Is the convicted IAP prohibition permanent?

Answer 44

Minimum 10-year prohibition from the date of conviction or the agreement of the person become final for the offenses listed in question #1.

Question 45

FDI ACT - SECTION 19 | What are the penalties for non-compliance?

Answer 45

Whoever knowingly violates subsection (a) shall be fined not more than $1,000,000 for each day such prohibition is violated or imprisoned for not more than 5 years, or both.

Question 46

FDI ACT - SECTION 19 Under Section 19 of the FDI Act, in considering any application made by an insured bank to employ a person who has been convicted of a criminal offense involving dishonesty or breach of trust, what are some of the factors that will be considered?

Answer 46

* Specific nature of the offense involved and the circumstances surrounding it; * Evidence of rehabilitation since the date of conviction. (Parole, suspension of sentence, and reputation of the person since conviction will be given consideration. Participation by the person in programs on the national or state levels to hire and retrain the hardcore unemployed also will be given consideration;) * Age of the person at the time of conviction; * Position to be held by the person in the bank; * Fidelity bond coverage applicable to the person.

Question 47

FDI ACT - SECTION 24 | What is the limitation on investments in a qualified housing project?

Answer 47

2% of total assets

Question 48

FDI ACT - SECTION 32 | Under what circumstances does the Federal banking agencies require prior notice to add a Board member?

Answer 48

The bank or bank holding company must provide at 30 days notice prior to the employment a senior executive officer, or the addition of a director to the Board if: • Not in compliance with minimum capital requirement • Is otherwise a troubled institution as determined by the most recent CALL Report or ROE • Agency determines, in connection with the review by the agency of the plan required under Section 38 or otherwise, that such prior notice is appropriate

Question 49

FDI ACT - SECTION 39 | Safety & Soundness Compliance Plan (Part 364) addresses what areas?

Answer 49

* Internal controls & internal audit systems * Information systems * Loan documentation * Credit underwriting * Interest rate exposure * Asset growth * Compensation fees and benefits * Other such operational and managerial standards as the agency determines to be appropriate

Question 50

FDI ACT - SECTION 42 | When should FDIC and customers be notified of a branch closure?

Answer 50

* Not later than the first day of the 90 day period ending on the date proposed for the closing; * Customers should be notified by account statement or separate mailing not less than 30-day period ending on the date proposed for the closing.