CRCM

How long after discovery does a bank have to report any lost or missing securities when criminal activity is suspected?

1 business day - The bank has one business day to report any lost or missing securities when criminal activity is suspected.

As a general rule, how is the lending limit for a national bank or savings association BEST described?

15 percent of capital and surplus for unsecured loans, up to an additional 10 percent of capital and surplus for loans fully secured by marketable collateral, and no limit on loans permitted by exception

Friendly Savings Association has made loans to ABC Co., Inc., and several of its subsidiaries. The association does not believe that the loans have to be combined under the common enterprise test. To what lending limit, if any, does the association have to adhere in its lending to ABC Co., Inc., and its subsidiaries?

50 percent of the association's unimpaired capital and unimpaired surplus

Which of the following is an exception from the lending limit regulations for national banks and savings associations?

A commercial letter of credit - Commercial letters of credit are not included in the definition of contractual commitment to advance funds.

Which of the following is not exempt from the rules on reasonable and proportional pricing of electronic debit transactions?

A debit card issued by a community bank with $7 billion in assets, affiliated with another depository institution with assets of $5 billion

Of the following loans made by a national bank, which loan is NOT covered by the OCC ARM regulation?

A loan made to purchase an eight-unit apartment complex, secured by the building, made payable on demand with a variable rate of interest - This regulation covers only loans made to purchase a one- to four-family dwelling. The regulation does not cover loans secured by or for the purchase of multifamily dwellings.

On which of the following adjustable-rate loans must the bank use an index beyond its control?

A loan to purchase a duplex where the borrower will live in one of the units - Only a loan secured by the borrower's principal residence qualifies for the protection of the ARM regulation that prevents the financial institution from using an index within its control. Other loans, even if they are for a consumer purpose, are not covered by the rule.

State National Bank's security officer is preparing for the bank's annual information security review. Which of the following steps is NOT required for this review?

A review of all outside windows to check for physical security, however it is required for the Bank Protection Act. The follow are required for the security review: An intrusion test of the bank's online banking system An audit of the bank lobby during business hours to determine whether customer information is kept private A review of all contracts from service providers with access to bank customer information

Which of the following elements would NOT be a potential indicator of redlining?

A special marketing program aimed at racial minority groups within an assessment area - An institution that implements a special marketing program aimed racial minorities is actively encouraging loans to protected classes. This is not an indicator of redlining.

ACME Bank would like to offer a 2.9 percent APR promotional rate for its new credit card. The rate is effective for the first six months of the account, unless the borrower makes a late payment or otherwise defaults on the credit card account. At the end of six months, or if an earlier event triggers a rate increase, the rate will increase to 15 percent APR. In order to be in compliance with the Credit Card Practices guidance, which of the following account terms does NOT need to be included in promotional materials?

A typical payment that would be due at the promotional rate - these are required by the guidance: All material limitations on the applicability of the promotional rate, The time period the rate is in effect, and Possible reasons for shortening the promotional rate period

Venture Ltd. is a limited partnership. ABC Corp. is a general partner of Venture Ltd. In addition, Venture Ltd. has several limited partners, including XYZ, Inc., a subsidiary of ABC Corp. ABC Corp. is owned by Holding Company, Inc., and both ABC Corp. and XYZ, Inc., were chartered for and are principally engaged in providing services to Holding Company, Inc., an equipment manufacturing company. ABC Corp., XYZ, Inc., and Venture Ltd. all have loans with Sanderson Savings Association. Which, if any, of the loans must be combined?

ABC Corp., XYZ, Inc., and Venture Ltd. - Because ABC Corp. is a general partner of Venture Ltd., loans to Venture and ABC must be combined under the partnership rules. XYZ and ABC must be combined under the common enterprise test. Each receives revenue from the same source (Holding Company) and therefore the source of repayment is probably the same. Also, each exists simply to provide services to the same company, and they are therefore financially interdependent.

To which homeowners must a bank give homeownership counseling disclosure and a Servicemembers Civil Relief Act Notice?

All borrowers who are no more than 45 days delinquent on their mortgage loan secured by a principal dwelling - The counseling notice is required for all borrowers who are in default. The notice must be provided within 45 days of the default, but would not be required if the borrower cured the default by making the delinquent payment within 45 days.

Which of the following is exempt from the lending limit rules?

An eligible bankers acceptance

Which of the following statements is true regarding debt card interchange fees and routing?

An issuer can meet the requirements of the network exclusivity rule by allowing transactions to be processed on two unaffiliated payment card networks that don't restrict transactions based on geography, merchant or transaction type.

At which of the following locations may a collecting bank NOT present an item?

Any bank for which presentment of the item would be convenient

How often must a national bank or savings association calculate its lending limit?

At the end of each quarter or when its capital changes

First National Bank is preparing for a regulatory examination that will include a HELOC portfolio acquired through a merger last year. The Risk Management team is reviewing internal controls, policies, and procedures to ensure the process for handling HELOC transactions meets expectations outlined in the Interagency Guidance on Home Equity Lines of Credit Nearing Their End of Draw Period. Which of the following should not be evidenced in the bank's current HELOC risk management practices?

Borrowers are directed to contact the Bank's customer service team two weeks before their end-of-draw date to discuss alternative repayment options.

Bank A offers safe deposit services in a vault area that contains a door too narrow for wheelchair passage. The bank cannot widen the door because of the vault construction. Therefore, when a customer in a wheelchair needs access to a safe deposit box the customer cannot enter the vault. The bank provides viewing rooms for all safe deposit customers, and one of these rooms has a door wide enough for a disabled customer to enter. Which of the following must the bank do to provide safe deposit box service to wheelchair customers?

Bring the safe deposit box to the customer and provide an accessible area where the customer may privately have access to the contents - The bank must make this service available in a manner that provides equal benefits. Because a nondisabled person would not have to be accompanied by another individual, the bank cannot require this of a disabled person. Also, the construction of a new vault is a significantly expensive undertaking, one that would probably impose an undue burden on the bank. The best alternative is to provide the disabled person with access to a private location and have bank personnel retrieve and deliver the box.

In which of the following activities may a bank engage and NOT be considered a municipal securities dealer?

Buying securities for the bank's own account

A compliance officer receives a call from a loan officer who asks for advice on what she should do with a stock certificate (1,437 shares of IBM) from a new loan customer who wants to pledge it in support of a loan that has been approved at your bank. What should the compliance officer tell her FIRST?

Contact the SIC to determine if the certificate was reported as lost, counterfeit, or stolen - Unless the certificate is received in connection with one of the types of transactions that do not require that an inquiry be made, banks must inquire about all certificates that come into their possession to ascertain whether they have been reported as lost, counterfeit, or stolen.

A subsidiary of First National Bank can legally participate in all but one of the following businesses. In which business may the subsidiary NOT legally participate?

Developing real estate - This is a power that is specifically excluded by the law.

Which of the following is NOT a corporate practice required of bank holding companies?

Each bank subsidiary must file a notice with the Federal Reserve before offering a new product.

Which of the following activities is exempt from the prohibition against engaging in unrelated business activities?

Engaging in an escrow operation - There is a limited list of activities that are exempt from the prohibition against engaging in unrelated business activities. A few types of activities are exempt, such as escrow operations and insurance activities.

Which of the following employment practices is NOT legal under ADA?

Establishing a policy that prohibits hiring alcoholic applicants - The bank may establish a policy that prohibits hiring applicants (or permits the firing of employees) who are under the influence of alcohol while at work. Because alcoholism is a disability, the bank cannot have a policy of refusing to hire such persons. However, the bank may hold the employee to the same performance standards and rules, (including those against being under the influence of alcohol at work) as the other employees.

First National Bank would like to automatically increase the credit card interest rate for customers who pay late three or more times in six months on their credit card or on any other loan, including on loans with other creditors. What must the bank do to be in compliance with the Credit Card Practices guidance?

Explain in promotional rate materials, the application, and the agreement the specific reasons the rate might increase automatically - If the rate will increase automatically, banks should explain the reasons that the rate may increase in the promotional materials, application, and agreement. If the bank does not disclose the reasons in these places, the bank still may increase the rate, (for example, because the customer's credit score dropped), but the bank must provide advance notice before the increase and include the reasons for the increase. Note that, depending on state law, the customer may have the right to close the account and pay off the balance at the original rate.

Country A (a foreign country that is boycotting Country B, another foreign country) has ordered goods from ABC, a U.S. corporation. Country A has opened a letter of credit with Overseas, Inc., a foreign bank. The letter of credit specifies that ABC must certify that it does not do business with Country B. Overseas, Inc., sends a telegram to First National Bank, a U.S. bank, stating the major terms and conditions of the letter of credit and asking First National Bank to confirm the letter of credit. The telegram does not state the boycott provisions. Overseas mails the letter of credit to First National Bank and asks First National Bank to confirm it. What may First National Bank do?

First National Bank may advise ABC of the letter of credit and administer its disposal, but may not confirm it and must report it to the Department of Commerce and the IRS - The bank may perform nothing but administerial actions with regard to the letter of credit—it may not confirm it. The bank should report the transaction to the Department of Commerce and the IRS.

First State Bank, a state nonmember institution, plans to purchase a company that would be a financial subsidiary of the bank. First State will send a notice to the FDIC of its proposed acquisition. Of the following factors, which one would NOT be relevant to the FDIC's consideration of the bank's acquisition?

First State Bank's asset size - The effect of the acquisition on the bank's safety and soundness, the bank's CRA rating, and whether it is well capitalized are all required regulatory considerations.

When an organization reorganizes into a federal mutual holding company, it must:

Give its members the same rights as immediately prior to the organization - The management of the association cannot dilute the rights of its members with reorganization into a mutual holding company. Members have to have the same quality of rights as prior to the merger.

Safe National Bank has a variety of consumer lending products. Among them are debt cancellation contracts that allow for the cancellation of a consumer's debt if certain events happen. The bank solicits sales for these contracts when the consumer makes an in-person loan application. What does Safe National have to do at the time of the application and solicitation?

Give the customer the short form disclosures orally and the long-form disclosures in writing.

Under Regulation GG which is a responsibility of regulated depository institutions?

Implement due diligence procedures for new commercial accounts - A financial institution that is a non-exempt participant in a payment system must have policies and procedures to conduct due diligence on new commercial accounts to be deemed to be in compliance with Regulation GG. Institutions are not required to monitor individual transactions.

In order to qualify for the fraud prevention adjustment an issuer must (debt card interchange fees and routing):

Implement fraud prevention and detection policies

Under the ADA, what can an employer do?

Inquire about a disability when offering a job provided the disability is related to the job requirements - The employer may inquire about a disability that is related to the job function. If necessary, the employer must provide a reasonable accommodation so that the employee can perform the necessary job functions.

For what can a Federal Reserve Bank be liable when transmitting payment orders through the Fedwire?

Interest on funds not properly received

To which of the following activities does the FFIEC Guidance on Authentication apply?

Internet, telephone, and call center banking - The guidance covers all types of electronic banking including voice response units, telephone banking, and call center banking where high-risk transactions can be conducted

Which of the following is a true statement regarding a mutual holding company's subsidiary holding company?

It must obtain FRB approval before issuing stock to any person except its parent

A financial institution will be in compliance with the blocking requirements of Regulation GG if:

It relies on compliance procedures implemented by the payment system operator - Financial institutions may rely on the policies and procedures of payment systems that are reasonably designed to block prohibited transactions.

First National Bancshares, Inc., a bank holding company, filed an application with its Federal Reserve Bank on March 1 to acquire a subsidiary bank. On March 15 the Federal Reserve Board asked First National for more information. On April 1 the Federal Reserve Bank received the completed application and accepted it. On April 5 the Federal Reserve Bank notified First National of the April 1 acceptance and referred the application to the Federal Reserve Board. Under the normal rules, by what date must the Federal Reserve Board act on the application?

June 1. The usual time from acceptance is 60 days. However, with additional notification, the Federal Reserve Board can extend the time up to 91 days from the date the Federal Reserve Bank accepted the application.

To which of the following do national bank and savings association lending limit rules apply?

Loans secured by third-party guarantees - The loans mentioned in the other alternatives are specifically exempted from coverage of the lending limit rules.

What are holders of unclaimed property required to do?

Mail a notification to customers whose accounts may escheat to the state

Which of the following is NOT a reason that the FRB will use to disapprove a reorganization plan?

Management previous submission of an application for a mutual charter

Which of the following provisions is MOST likely to raise fair lending questions if found to be in a written loan policy?

Minimum income requirement - The minimum income requirement is more likely to disparately impact lower income applicants that are more likely to be in protected classes.

Elliot Pierce, a borrower at ACME bank, defaulted on his home loan. It is the seventh home he has owned in his life. Elliot defaulted because, although his job is stable, he decided that he overpaid for the house and he could rent an apartment and save more money. Elliot has defaulted on mortgages in the past and believes his credit will recover. The bank is planning to send Elliot a default letter. Does the bank need to send Elliot a homeownership counseling disclosure?

No, because Elliot's reason for default makes him ineligible

Mills Company, Inc., is a manufacturing company with a working capital line of credit from First National Bank. The credit agreement governing the loan states that Mills cannot obtain additional unsecured credit without the approval of the bank. Mills believes that such a clause violates the Bank Holding Company Act's anti-tying clause. Does it?

No, since this clause relates to the soundness of the credit - Banks may not extend credit, lease or sell property, furnish services, fix, or vary consideration conditioned on the customer not obtaining credit or services from a bank competitor unless imposed to assure soundness of the credit.

ACME National bank uses telephone solicitations to sell its debt cancellation contracts. The banker explains to the borrower the nature of the contract, gives an oral short form disclosure, receives the customer's affirmative election orally, and sends the written long form disclosures and written affirmative election within three business days. Is the bank in compliance with the telephone solicitation rules as they apply to affirmative elections?

No, the bank also must give the customer 30 days to cancel the contract. - Oral affirmative elections are acceptable forms of agreeing to a debt cancellation contract; however, the disclosures must be given orally and in writing; the election must be given orally and in writing, and the customer must be allowed to cancel the contract within 30 days.

ABC National Bank regularly purchases mortgage loans from ACME Mortgage Company, a local mortgage broker. ACME places a mandatory arbitration clause in each of its mortgage documents. ACME believes this clause is necessary because of state laws governing arbitration. Is this clause a problem for ABC National?

No, unless other predatory or abusive lending practices are evident in the loans sold by ACME. - As noted in the outline, use of mandatory arbitration clauses may be a signal that an institution is marketing predatory or abusive loans. However, such clauses are not unfair in and of themselves. In the case of ACME and ABC National Bank, the use of mandatory arbitration clauses does not, in and of itself, indicate a problem.

First National Bank owns a data processing company that sells financially related data processing services to various businesses in the community. Daniel Tyler, a loan officer, is negotiating a loan to a local CPA firm. He would like to make the loan conditional on the CPA firm's use of the subsidiary data processing firm. May he do so?

No. It is an illegal tie-in. - No loan can be conditioned on the borrower obtaining services from a bank subsidiary.

First National Bank advises Country A, a boycotting country, on various U.S. investments. Country A instructs First National Bank not to recommend for investment any shares of certain blacklisted companies. First National Bank follows this instruction. Has First National Bank participated or cooperated in an international boycott under the IRS regulations by this action?

No. The bank may agree not to recommend certain companies.

Martha Smith of First National Bank is attempting to close a large commercial loan to a manufacturing equipment company. In negotiating the interest rate on the loan Martha states that if the company will move some of its demand accounts to the bank, it could get a lower interest rate. Is this wrong?

No. The bank may condition the loan on the customer placing a deposit in the bank. - The bank may condition the extension of a loan on the customer placing a deposit in the bank. Anti-tying provisions stipulate that banks may not extend credit, lease or sell property, furnish services, fix, or vary consideration conditioned on the customer obtaining additional credit or service from the bank other than a loan, discount, deposit, or trust service.

ACME National Bank has a Web site that lists the bank's products and services. On its consumer loan page it lists debt cancellation contracts as an available product. What other disclosure must the bank place on this Web page?

None. Because it only lists the product, nothing else is required.

First National Bank opened a letter of credit in favor of ABC Co., a U.S. company, for ABC's sale of goods to Country X, a foreign country that participates in a boycott. The letter of credit contains no boycott provisions, but First National Bank knows that ABC Co. has agreed to supply a certification to Country X that ABC has not dealt with any blacklisted firms as a condition of receiving the letter of credit in its favor. What should First National Bank do?

Not implement the letter of credit - The bank knows of an implicit condition with which ABC cannot legally comply, so it should not implement the letter of credit.

ACME national bank plans to acquire Smith Brothers insurance agency and make it an operating subsidiary of the bank. ACME is considered a well-managed and adequately capitalized bank. What regulatory-related action must ACME take to obtain the agency?

Notify the OCC before completing the sale - The bank is not well capitalized; therefore, it must give prior notice to the OCC before purchasing the agency.

Which of the following practices could a national bank implement and remain in compliance with the Credit Card Practices guidance?

Offer a promotional rate for only 90 days after the card is activated. However, the term of the promotional rate should be fully disclosed.

Which of the following is NOT a permissible activity for a savings and loan holding company?

Offer tax and accounting services to small businesses - The holding company can provide tax and accounting services only to its affiliates.

For which of the following business activities must a bank holding company obtain prior approval of the Federal Reserve Board?

Operating an auto club service

According to the 2007 interagency statement on subprime mortgage lending, what should an institution offering mortgage loans to subprime borrowers provide before submission of an application?

Payment shock information

Which of the following actions is NOT a requirement of the bank's directors in implementing an information security program?

Physically audit the bank's online banking system - This is not a requirement for the board of directors. The following is required: Approve the information security program Determine whether the information security officer is qualified Review management reports on information security periodically

Bank policies and procedures for check collection must include what procedure to follow when a bank has actual knowledge that checks for restricted transactions have been received from a bank customer:

Procedures for determining the action to take, including when the account should be closed - If a bank has actual knowledge that restricted transactions have occurred its policies should include procedures for determining what action should be taken. The regulation does not require specific actions a bank must take when this occurs, but does require the bank to establish its own policies and procedures that describe the action it will take in this event.

Which of the following activities is permitted under ADA?

Prohibiting smoking anywhere in the bank building - The bank cannot discriminate against persons who regularly associate with persons with disabilities. It also cannot charge for auxiliary devices that are used as a reasonable accommodation. Therefore, it cannot charge for the readers. The bank may not force a disabled person to use a segregated service, such as a special teller window. If the disabled person wants to use the regular window, the bank must allow him or her to do so. The bank may prohibit smoking within the building.

Which of the following activities is NOT a permissible nonbanking activity?

Providing general courier services to the businesses around the bank office - Courier services may only be provided for banking and other financial records.

A municipal securities principal must directly supervise municipal securities operations. This includes reviewing all but one of the following. Which task is NOT involved in directly supervising municipal securities operations?

Providing quotations to customers the following are reviewed: Opening the customer's account Handling customer complaints Handling a municipal securities transaction

Which of the following relationships does NOT violate Regulation L? • Relationship A: First National Bank is located in the same city as an affiliate of First Savings and Loan. First National and the affiliate share a board member. • Relationship B: State Bank and an affiliate of First National Bank are located in the same RMSA . State Bank has assets of $60 million, and the affiliate has assets of $7 million. The two institutions share a board member. • Relationship C: Savings and Loan Association and Bank Holding Company do not have offices within the same RMSA. Bank Holding Company's assets are in excess of $1.75 billion, and Savings and Loan Association's assets are in excess of $2.5 billion. These institutions share a board member.

Relationship B - Relationship B does not violate Regulation L because to be covered by the restrictions of Regulation L both institutions within the same relevant metropolitan statistical area must have assets of at least $50 million.

The OCC recommends all but one of the following actions to help prevent a national bank's purchasing or acquiring predatory or abusive loans. Which practice is NOT recommended?

Require the broker to establish a reserve account for legal contingencies

A recent audit revealed that the bank's personal trust division was failing to determine whether securities being accepted from new trust customers have been reported as lost or stolen. To address the root cause of this problem, what should the compliance officer do FIRST?

Review the policies and procedures for accepting securities in new personal trust relationships to ensure securities verification - Addressing the policies deficiencies should be the first course of action. Training personnel and inquiring about securities are a part of the corrective action, but the policy must be developed first.

Second State Bank offers a mortgage product that involves simultaneous second lien loans. These include a first lien for up to 90 percent of the purchase price and a second loan for the down payment, secured by a second lien on the property. The bank would like to be in full compliance with the Interagency Guidance on Nontraditional Mortgage Product Risks. Which of the following should Second State Bank incorporate into its loan program?

Risk management procedures to measure the risk of all simultaneous second lien loans and report results to management - The bank should make sure management is aware of the risk of its nontraditional mortgage portfolio, segmented by product.

Bob Jones, president of First National Bank, does not believe the bank has to do anything to comply with the FFIEC Interagency Guidance. The bank has an information-only Web site, does not offer any online Internet banking services, and only offers telephone banking at this time. Which of the following statements best describes the bank's responsibility? Statement 1: The bank does not offer any Internet banking services, so it does not need to worry about the Interagency Guidance at this time. Statement 2: First National Bank should conduct a risk assessment on their telephone banking services. They should provide written support for the low risk and adequacy of single-factor authentication. Statement 3: Telephone banking service offers only standard balance and transfer between accounts. No risk assessment is required. Statement 4: The bank should have information on fraud and identity theft inserted on its Web site for customer awareness. Information should also be available in the bank lobby and should be evaluated periodically.

Statements 2 and 4 - The bank needs to conduct a risk assessment for its telephone banking services and provide support for maintaining single-factor authentication assessment and low risk. The bank is also required to provide customer awareness information to their customers.

Bank C is a $250 million bank in a large city. Recently the compliance officer of Bank C performed a review of consumer loans made during the previous 12 months. She also reviewed adverse action notices generated during the same period. She compared denied applications for persons with Hispanic surnames to loans made to persons without Hispanic surnames. She noted that in some cases the credit histories of loans on the books were similar to those of applicants denied for delinquent credit. What should be a concern for this compliance officer?

That the bank is engaging in disparate treatment - When there is no other explanation for the treatment of credit applicants except a prohibited basis, then the bank could be engaging in disparate treatment.

First National Bank (FNB) purchased a table for $500 at the Governor's reelection fundraising dinner last fall. FNB President Sally Holmes tells Mary Watkins, the municipal securities principal, that the bank is planning to participate in the upcoming state highway bond. What does Ms. Watkins tell President Holmes?

The bank cannot participate within two years of a contribution to municipal entities.

Acme Bank offers its customers Internet banking that includes bill payment services, wire transfer initiation, and access to customer account history. Acme has had to spend a substantial amount of money implementing a multifactor authentication system that will continue to be fairly expensive to operate. Which of the following is the best alternative for Acme that will allow the bank to be in compliance with the FFIEIC guidance?

The bank could provide the multifactor authentication to all customers who use the Internet banking services - Cutting back or discontinuing its services is not the best answer for the bank. The customers cannot opt out of the multifactor authentication in high-risk transactions.

The mortgage lending department of Bank XYZ received some inquiries from potential applicants who are visually impaired. The bank would like to comply with ADA concerning these potential applicants, but it does not want to spend a significant amount of money. Which of the following statements is true?

The bank may have a loan assistant read each loan application and disclosure document to the applicant and assist in completion of the forms. - Although the bank may have its documents translated into Braille, it is not required to do so. The bank cannot require that the applicant bring a nondisabled friend, and it cannot make a policy that blatantly discriminates against a class of disabled persons.

ABC Bank has several customers with hearing disabilities. Of the following, which statement is true?

The bank must reasonably provide auxiliary aids and services to assist in communications with its disabled customers

First National Bank is a member of a multibank holding company. The bank makes ARM loans and occasionally purchases ARM loans from its affiliate national and state banks as well as from nonaffiliate banks. All of its own ARMs and well as those it purchases are subject to Regulation Z. Which of the following practices is NOT acceptable under the OCC ARM regulation?

The bank purchases loans from its state affiliate banks where the index on the loan is tied to First National's prime rate. - The OCC ARM regulation requires that any index used on an ARM loan not be linked to a rate within the control of the bank. The regulation also requires that loans purchased by a national bank from an affiliate or a subsidiary comply with the ARM regulation.

Bank B is a community bank heavily involved in consumer lending. It offers overdraft lines of credit, unsecured loans to creditworthy borrowers, and installment loans secured by automobiles and other consumer goods. The senior lender at Bank B believes that loans under $1,000 are too costly for the bank and would like to prohibit loans of this size as a part of bank policy. A minimum loan amount might adversely affect low-income consumers. What should the senior lender do to exclude such loans from bank policy without creating a fair lending problem?

The bank should conduct an analysis to determine whether loans of under $1,000 are really too costly to make. If they are, the bank should then determine if there is any other way to meet the credit needs of consumers who would apply for these loans. If there is an alternative, this alternative method must be implemented. If there is no alternative, the minimum loan policy may be implemented. - Because the policy has the possibility of adversely affecting a protected group, the bank should consider whether there is a business necessity for the policy. This can only be accomplished by analyzing the costs of making small loans against the income received from these loans. Only by formally analyzing the process can the bank determine whether there is a business necessity mandating the proposed policy. If these small loans are too expensive to make, the next step is to determine if there is an alternative. Perhaps applicants for small loans could be offered an overdraft line of credit for the amount because this product is already in place. Only if there is a business necessity for the policy and no less discriminatory alternatives should the policy be implemented.

The senior lender at ABC bank would like to make stated income mortgage loans (i.e., loans where the bank does not verify the applicant's income) to mortgage customers, including subprime borrowers. Under the statement on subprime mortgage lending, which of the following is the best statement of the bank's responsibility regarding this new program?

The bank should make a policy for this program that includes mitigating factors for the risks

ACME Bank is reviewing its security program for safeguarding customer information. All but one of the following functions should be included in its review. Which one need NOT be included?

The bank's printed marketing and promotional materials

Under which circumstance would a creditor be allowed to refuse to renew an alternative mortgage parity transaction?

The borrower refused to keep the house insured for hazards.

Which of the following is NOT a factor considered by the Federal Reserve Board when it evaluates an application under Regulation Y?

The current nonbanking activities of the applicant. The Fed DOES consider the following: (1) The financial strength of the applicant, (2) The management strength of the applicant, and (3) The effect of the transaction on competition.

When it returns a check to the Federal Reserve, for which of the following may a returning bank NOT warrant?

The presenting bank's endorsement

A savings and loan holding company that received approval to acquire a savings association in 1986 is grandfathered for purposes of the permissible activities as long as:

The savings association does not increase its number of locations - The only alternative that is specifically prohibited in a grandfathered institution is to increase the number of locations.

Which state receives the reporting and escheatment of unclaimed property?

The state of the customer's last known address, if available and not foreign

What is the purpose of the lending limit regulation?

To promote safety and soundness by preventing an excessive amount of loans to one person or related persons

First National Bankshares, Inc., a bank holding company, held substantially all of the voting stock of an equipment manufacturing corporation as collateral for a loan to the owner. On May 15 the borrower defaulted and on September 1, after proper notice was given, the bank foreclosed its security interest on the stock and exercised its rights to vote the stock at appropriate times. On December 31 the bank transferred the stock to a subsidiary corporation, FNB, Inc., to market the stock for sale more effectively. What is the longest time period that FNB, Inc., can possibly hold the stock?

Up to five years from September 1 - Property that is a DPC acquisition (that is, acquired in connection with a debt previously contracted) can be held for up to two years. On request the Federal Reserve Board may grant up to three additional one-year extensions of this time period. Real property or property that can be demonstrated to have the characteristics of real property may be held for longer time periods. The transfer of property to a subsidiary of the bank holding company does not extend the time period for which it can be held.

In which of the following situations is the bank NOT required to report lost or stolen securities?

When securities with no CUSIP numbers were expected from another financial institution - Securities with no CUSIP numbers are exempt from reporting requirements. All of the other transactions described are covered.

When may an automatically renewable time deposit account be considered for inclusion in the unclaimed property report?

When the customer has not deposited or withdrawn funds from the account or another account at the same bank

Generally, a financial institution is required to ascertain if securities certificates they have taken by pledge, transfer, or otherwise have been reported as missing, lost, counterfeit, or stolen. When is it NOT required to take such actions?

When the securities certificate is received directly from the issuer or issuing agent at issuance.

Which of the following actions is NOT required of a municipal securities principal?

Work as an apprentice for one year in a municipal securities operation the following is a requirement: Pass the Municipal Securities Principal Qualification Examination Complete Form MSD-4 and submit it to the bank Work in a supervisory role in a municipal securities operation

Juanita Brown has her home loan at ACME Bank. Her payment was due on December 1. It is now January 7. Must ACME send her a homeownership counseling notice?

Yes, all eligible borrowers must receive a notice before the loan is delinquent for 45 days unless a payment is made within that time. - The bank must provide the homeownership counseling notice before the loan is delinquent for 45 days. If the borrower makes the payment within that time period, the bank does not have to send the notice.

A current member of the board of directors at First Savings Association (an institution with $150 million in total assets) was a director at First National Bank (an institution with total assets of $200 million) for many years. The two institutions are located in the same town. Before being elected to the board of First Savings, the director retired from the First National board. To honor his years of service with First National, the bank made him a director emeritus for life. He can attend any board meeting but cannot vote. He may speak to matters before the board and receives a director's fee. In actuality, however, the director never attends board meetings. Does this relationship violate Regulation L?

Yes, because he is really an honorary director. - The fact that the director can or cannot vote is not relevant, nor is the fact that he receives a fee a deciding factor. The director can attend the meetings and, according to regulatory interpretations, is an honorary director. Because the institution's assets are $100 million or greater, the director is a ''management official,'' and the interlock is not legal.

Trust Co. and First National Bank are located in the same city and each has assets of over $50 million. The president of First National has been asked to serve as a director of Trust Co. First National has no trust department and no trust operations. Trust Co. operates solely as a trust company. Would this relationship violate the prohibitions against management official interlocks in Regulation L?

Yes, because the institutions are in the same city. - The fact that there will be no competition between the institutions is irrelevant.

Jayne Logan, a loan officer at State National Bank, has recently recruited Mr. David Roberts as a new loan customer. She has known Mr. Roberts for 10 years and handled his lending transactions at another bank where she previously worked. As his first transaction with State National Bank, Mr. Roberts pledges stock that is traded on the NYSE. The stock is received directly from Mr. Roberts, who has his secretary personally deliver it to the bank. Is the bank required, in this instance, to send a lost or stolen securities inquiry regarding the stock? Why or why not?

Yes. Because Mr. Roberts is a new customer to the bank, the inquiry must be sent. - Transactions like this one must have inquiries sent to the SIC because Mr. Roberts is a new customer. The bank has not had any previous securities-related transactions with Mr. Roberts.

First National Bank had a legal lending limit of $150,000. On March 1 it had outstanding to ABC Company loans equaling $100,000. On that same day, it made a contractual commitment to lend to ABC Company another $50,000. The bank's capital base deteriorated during the next three months, and by the time the bank was called on to fund its commitment to ABC Company, its lending limit had dropped to $125,000. Can the bank fulfill its commitment to ABC Company by lending the additional $50,000?

Yes. Because the commitment was legal when it was made, it is still legal.

Bob's wife is HIV-positive due to a blood transfusion during an appendectomy 15 years ago. She is not yet sick, but takes medication to prevent the onset of AIDS. Bob occasionally needs to take time off from work to take her for testing at Johns Hopkins in Baltimore. Because of complaints about Bob's exposure to this disease, employees have asked HR to limit his contact with them and with customers. The bank has asked Bob not to eat in the lunchroom with the other employees and has placed Bob in a position where he has limited customer contact. Does this company have any potential ADA liability?

Yes. Because the manager has associated Bob with this disease, the ''associated with'' rule applies

First National is developing a consumer checking account that can access a line of credit. This is the first time the bank has ever had such a product, although this type of credit facility has been popular with other banks in town. To determine what interest rate to charge on this account, an officer of First National called some of his friends at other local banks offering this type of credit and asked several questions, including the interest rate charged on this type of account and what internal factors the banks use to set the rate. After obtaining this information, First National determines that it could charge approximately 2 percent more than it originally planned. Is there anything wrong with this course of action?

Yes. Communicating with competitors for purposes of setting prices is wrong. - This scenario is an antitrust price-setting problem. The bank is blatantly attempting to lessen competition by setting prices based on the prices of competitors. The whole purpose of the antitrust laws is to prevent this type of price setting.

Issuing Bank, a foreign bank, maintains an account with First National Bank, a U.S. bank. Issuing Bank issues a letter of credit in favor of ABC, Inc., a U.S. corporation. The letter of credit contains a boycott provision. The letter of credit provides that any negotiating bank may obtain reimbursement from Issuing Bank's account at First National Bank by certifying that the conditions of the letter of credit have been met. Issuing Bank does not send First National Bank a copy of the letter of credit. May First National Bank reimburse negotiating banks for the letter of credit when it contains a boycott provision?

Yes. First National Bank did not know of it, so it may reimburse a negotiating bank.

Roger Jameson is the head of the consumer loan department at First National Bank. He is a regular participant in a lending committee of a local finance trade association. The committee meets once a month at a local hotel. After the committee meetings, Roger and several other committee members who are officers at other banks in town go to a hotel restaurant and talk for a couple of hours before leaving. During these informal conversations Roger learned that the other members require the car dealerships in town that sell consumer installment contracts to the banks to refrain from selling them to local savings and loan associations. Roger believes that this is a good idea and would like to implement it at First National. Is there a problem with doing so?

Yes. Restricting the dealerships is a restraint of trade. - This action could be considered both a restraint of trade and a conspiracy to restrain trade.

ABC Co. signs a contract to export goods to Country G, a boycotting country. Payment will be made by a letter of credit confirmed by First National Bank. The letter of credit requires the goods to be shipped on a ship eligible to enter the port of Country G in conformity with its laws and regulations and that the insurer of the goods has an agent in Country G. Country G's laws prohibit blacklisted ships from calling at its ports and blacklisted insurance companies from qualifying agents in Country G. First National Bank confirms the letter of credit. Did the bank's action constitute an agreement to participate in or cooperate with an international boycott, and is it subject to IRS reporting requirements?

Yes. The action is an agreement to cooperate with or participate in a boycott and, yes, it is subject to the reporting requirements.

ABC Co. signed a contract to export goods to Country M, a boycotting country. Payment will be made by a letter of credit confirmed by First National Bank. The letter of credit requires ABC Co. to certify that none of its directors are nationals of any country boycotted by Country M before ABC can be paid. First National Bank confirms the letter of credit to ABC after determining that all of the documents are in order. Did First National Bank participate in a boycott, and must the bank report the action to the IRS?

Yes. The action was participation in a boycott and the bank must report the action to the IRS.

Bank A offers a special senior citizen deposit package of benefits that includes free checks, free travel agency services, and a credit card with no annual fee. Bank A generally charges a $25 annual fee for its credit card. The senior citizen deposit package is available to all persons who are at least 55 years of age. There are no income requirements, but there is a minimum deposit balance requirement. Are there any fair lending violations in this practice?

Yes. The age requirement constitutes age discrimination and is not legal under the ECOA. - Regulation B allows creditors to treat elderly applicants (applicants who are 62 years of age or older) more favorably. Bank A's program favors persons who are too young. Because age is a prohibited basis under the ECOA, the program does not meet the fair lending requirements.

First National Bank, a U.S. bank, is contacted by Manufacturing Company, Inc., a U.S. company, to finance its transaction with Country Z, a boycotting country. Payment will be made through a letter of credit in favor of Manufacturing Company at its U.S. address. First National Bank knows that the letter of credit will contain restrictive boycott conditions that would prevent the bank from implementing it. First National Bank suggests to Manufacturing Company, Inc., that it set up a shell corporation in Country Y, a nonboycotting country, and have the shell corporation be the beneficiary of the letter of credit. Does First National Bank have any problem with this transaction?

Yes. The transaction is set up to evade the regulation and First National Bank is liable.

Which of the following transactions does NOT require prior approval of the Federal Reserve Board?

a. The formation of a bank holding company b. The acquisition by a bank holding company of a subsidiary c. The acquisition of 25 percent of voting stock of a bank by another bank, in good faith, in its fiduciary capacity with no power to vote d. The acquisition of 25 percent of voting stock of a bank by another bank in its fiduciary capacity for the benefit of the acquiring bank's employees C - Choices (a) and (b) clearly require Federal Reserve Board approval. To avoid the necessity of Federal Reserve Board approval for choice (d), this transaction would have to be for the beneficial interest of parties other than the acquiring bank's employees, shareholders, or subsidiaries.

First National Bank has a general lending limit of $150,000 and an additional limit of $100,000 for loans that are fully secured by readily marketable collateral. The bank has outstanding to Peter Phillip an unsecured loan for $150,000. Which of the following is legal?

a. The payment of an overdraft on Mr. Phillip's account b. An additional unsecured loan to Mr. Phillip where the entire loan is sold as a participation to a correspondent bank without recourse to First National c. The issuance of a standby letter of credit for the account of Mr. Phillip d. The extension of credit to a general partnership in which Mr. Phillip is a partner Options a, c, and d will not work for the following reasons: Overdrafts, standby letters of credit, and loans to a partnership (which are considered loans to the partners) would all be considered extensions of credit and thus count in the lending limit to the borrower. Option b involves a participation sold without recourse to the selling bank or association, which would not be counted in the lending limit to the borrower.