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Flashcards in Rd. 2 Deck (66):

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


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?


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)


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.



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
Insured brokered deposits up to $250M

Short term investments
Securities purchased under agreements to resell
Debt securities with a remaining maturity of one year or less

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?


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



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?


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


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.



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


Correspondence from regulator


Written agreement

Section 8 action



Weaknesses with Gap analysis?


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?


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



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