Reg W - start questions

8. A bank grants a loan to an individual secured by its parent holding company's stock. Check all that apply. A. Quantitative B. Collateral C. None of these apply

A. Quantitative

3. Which of the following selections is considered an extension of credit under Regulation W? Check all that apply. A. Lyndon Bancorp has a demand deposit account with Lyndon Bank. B. Lyndon Bancorp has a $1,000,000 line of credit with Lyndon Bank. C. Lyndon Bank purchased commercial paper from Lyndon Bancorp. D. Lyndon Bank sold fed funds to Burnham Bank, a sister bank.

"B, C and D are correct, Lyndon Bancorp has a $1,000,000 line of credit with Lyndon Bank., Lyndon Bank purchased commercial paper from Lyndon Bancorp. Lyndon Bank sold fed funds to Burnham Bank, a sister bank."

"1. Which of the following transactions requires collateral? Check all that apply.A. A bank grants a line of credit to an affiliate B. A bank grants an intraday extension of credit to an affiliate C. A bank loans funds to an individual who, in turn, lends the same amount to the bank's parent holding company D. A bank grants a loan to an affiliate

A bank grants a line of credit to an affiliate C. A bank loans funds to an individual who, in turn, lends the same amount to the bank's parent holding company D. A bank grants a loan to an affiliate. That's correct. In general, an intraday extension of credit is considered exempt from collateral requirements if the bank has policies and procedures for assessing the exposure from such credits, monitors such exposures, ensures that they are on terms no less favorable to the bank than for similar transactions with third parties, and ceases to treat an extension of credit as intraday at the end of the bank's business day. Each of the other transactions requires collateral.

9. Which of the following selections is considered a low-quality asset for Regulation W purposes? Check all that apply. A. A loan that was classified as substandard at a recent exam. B. A loan whose principal and interest payments are over 30 days past due C. A loan that is in nonaccrual status D. A loans whose payment schedule has been restructured due to the deteriorating financial condition of the borrower

A, B, C & D, That's correct. Each of these assets is considered low-quality.

****** 2. Section 223.14 of Regulation W establishes collateral requirements for any extension of credit granted to an affiliate. Select the value-to-loan balance ratio that correctly corresponds to the collateral pledged: A. 110 percent - state and municipal obligations. B. 100 percent - earmarked deposit in another bank. C. 130 percent - loans and accounts receivable. D. 120 percent - stock, bonds and traded securities.

A. 110 percent - state and municipal obligations.

6. Which of the following selections would be considered an affiliate under Regulation W? (Assume all subsidiaries are 100 percent owned.) Check all that apply. A. One Bancorporation - a bank's holding company B. One Financial Corporation - a bank's financial subsidiary, C. One Nonbank Corporation - a mortgage subsidiary of a bank's holding company D. Joel Loej - a principal shareholder of a bank's voting stock

A. One Bancorporation - a bank's holding company B. One Financial Corporation - a bank's financial subsidiary C. One Nonbank Corporation - a mortgage subsidiary of a bank's holding company, That's correct. Under Regulation W an affiliate must be a company, partnership, limited liability company, business trust or similar entity. Mr. Loej is an individual and is the only option that is not considered an affiliate.

"13. What is the purpose of Regulation W? Check all that apply. A. Protects the bank's balance sheet from being compromised for the benefit of an affiliate. B. Limits the ability of a bank to transfer its federal subsidy (benefits of being a financial institution and being insured by the FDIC) to its affiliated companies. C. Enables an affiliate of the bank to engage in any transaction, including insurance and merchant banking.

A. Protects the bank's balance sheet from being compromised for the benefit of an affiliate. B. Limits the ability of a bank to transfer its federal subsidy (benefits of being a financial institution and being insured by the FDIC) to its affiliated companies., That's correct. Regulation W protects the bank's balance sheet from being compromised for the benefit of an affiliate as well as limiting the transfer of its federal subsidy to affiliated companies.

9. A bank grants a loan to its parent holding company secured by FHA-insured mortgages. A. Quantitative B. Collateral C. None of these apply

A. Quantitative B. Collateral , the parent is an affiliate, and the collateral (FHA-insured mortgage) are not considered obligations of the US treasury or a US agency. If they were, the loan would be exempt under Section 223.42 (c) if fully secured.

7. A bank permits its parent company to overdraw its checking account for a 10-day period. A. Quantitative B. Collateral C. None of these apply

A. Quantitative B. Collateral, a bank's parent company is an affiliate and overdrafts are extensions of credit that are subject to both quantitative and collateral restrictions under Reg W.

4. A bank makes a loan to a third party that is fully secured by stock of the bank's parent holding company. Which one of the following is true? A. The loan must count against the bank's quantitative limits. B. The loan is exempt because it is fully secured. C. The loan must meet both the quantitative limits and collateral requirements of the regulation. D. The loan is not to an affiliate, so it is not a covered transaction.

A. The loan must count against the bank's quantitative limits.

"10. Bank of May would like to renew a loan participation that it purchased from an affiliate. Since the purchase, the loan has become low-quality. Which of the following conditions must the bank meet in order to renew the participation? Check all that apply. A. The renewal is needed to protect Bank of May by enhancing the ultimate collection of the loan. B. Bank of May's share of the renewal is roughly proportional to its original participation. C. The bank provides notice to its primary federal supervisor within 45 days of renewing the loan

A. The renewal is needed to protect Bank of May by enhancing the ultimate collection of the loan. B. Bank of May's share of the renewal is roughly proportional to its original participation., That's correct.In order to renew the participation the following conditions must be met: 1) the loan was not low-quality when the bank purchased its participation, 2) the renewal or extension of additional credit is needed to protect the bank by enhancing the ultimate collection of the loan, 3) the participating bank's share of the renewal or additional credit is roughly proportional to its original participation, and 4) the bank provides its primary federal supervisor notice within 20 days of renewing or providing additional credit on the loan.

"10. True or False? When combining the ownership interest of a group of shareholders, if the group controls 25 percent of the stock of two banks, the banks are affiliated under Regulation W. A. True B. False

A. True

13. True or False? For determining a bank's quantitative restriction under Regulation W, loan loss reserve is included in the definition of bank capital and surplus. A. True B. False

A. True

15. This question is based on the Big City scenario. Review the facts if you are unfamiliar with them. True or False? Ace is an affiliate of the Lead bank. A. True B. False

A. True

16. This question is based on the Big City scenario. Review the facts if you are unfamiliar with them. True or False? CAP is an affiliate of the Lead bank. A. True B. False

A. True

18. This question is based on the Big City scenario. Review the facts if you are unfamiliar with them. True or False? Star is an affiliate of the Lead bank. A. True B. False

A. True

19. This question is based on the Big City scenario. Review the facts if you are unfamiliar with them. True or False? Troy is an affiliate of the Lead bank. A. True B. False

A. True

20. This question is based on the Big City scenario. Review the facts if you are unfamiliar with them. True or False? Leasing is an affiliate of the Lead bank. A. True B. False

A. True

14. This question is based on the Big City scenario. Review the facts if you are unfamiliar with them. True or False? Big City is an affiliate of the Lead bank. A. True B. False

A. True,A company that controls a bank and any other company controlled by the company that controls the bank is considered an affiliate.

22. This question is based on the Big City scenario. Review the facts if you are unfamiliar with them. What are the Lead bank's quantitative restrictions in regards to covered transactions to one affiliate and to all affiliates? A. $6,240 / $12,480 B. $6,790 / $13,580 C. $6,260 / $12,520 D. $6,780 / $13,560

B. $6,790 / $13,580

2. Young Bank has made a loan to an affiliate that is collateralized by general obligation bonds of Paris, Texas. What percentage of the transaction amount should be collateralized? A. 100 percent of the amount of the transaction B. 110 percent of the amount of the transaction C. 120 percent of the amount of the transaction D. 130 percent of the amount of the transaction

B. 110 percent of the amount of the transaction, That's correct. 110 percent of the amount of the transaction should be collateralized if the collateral consists of obligations of any political subdivision.

1. Which of the following would not represent a low quality asset? A. A specially mentioned loan. B. A loan renegotiated to enhance a customer's working capital needs. C. Classified other real estate. D. A loan renegotiated due to borrower's bankruptcy.

B. A loan renegotiated to enhance a customer's working capital needs.

"12. True or False? The collateral requirement for privately-issued CMO obligations pledged as collateral on an affiliate's loan is 100 percent, if supported by GNMA securities. A. True B. False

B. False

11. True or False? The restrictions of Section 223.54 that prohibit a bank from implying responsibility for its affiliate's obligations are only limited to advertisements. A. True B. False

B. False

17. This question is based on the Big City scenario. Review the facts if you are unfamiliar with them. True or False? PAB is an affiliate of the Lead bank. A. True B. False

B. False

21. This question is based on the Big City scenario. Review the facts if you are unfamiliar with them. True or False? Properties is an affiliate of the Lead bank. A. True B. False

B. False, Properties is exempt under section 223.2(b)(2) from affiliate status since its only activity is holding premisses used exclusively for bank operations.

11. The only transactions between a bank and its affiliates that must meet the market term requirements of Regulation W are those that are defined as covered transactions. A. True B. False

B. False, That's correct. In addition to covered transactions the market term requirements of Regulation W include: 1) a bank's sale of an asset to an affiliate, including an asset subject to an agreement to repurchase; 2) a bank's payment of money or the furnishing of services to an affiliate; 3) any transaction in which an affiliate acts as an agent or broker or receives a fee for its services to the bank; 4) any bank transaction or series of transactions with a third party, if an affiliate has a financial interest in the third party or is a participant in the transaction; and 5) any bank transaction with a third party if any of the proceeds of the transaction benefit an affiliate.

"5. Section 223.53 prohibits a bank or its subsidiary from knowingly purchasing or otherwise acquiring, on its own behalf, any security underwritten by an affiliate during the existence of an underwriting or selling syndicate unless: A. the bank made an independent investment decision prior to the syndicate being formed. B. the acquisition was approved by a majority of the bank's directors prior to the sale of the securities to the public. C. the bank is also a member of the syndicate underwriting the securities. D. the acquisition was approved by a majority of the outside directors before the securities are offered to the public.

B. the acquisition was approved by a majority of the bank's directors prior to the sale of the securities to the public.

5. Which company would not be considered exempt from affiliate status? A. Any company engaged solely in holding physical premises of the member bank. B. Any company engaged solely in conducting a safe deposit business. C. Any investment company (generally a mutual fund) with respect to which the member bank or affiliate serves as an investment advisor. D. Any subsidiary of the member bank, as long as it is not a depository institution or a financial subsidiary and is not controlled by another affiliate of the member bank (like its parent company) or by shareholders who also control the member bank or its parent.

C. Any investment company (generally a mutual fund) with respect to which the member bank or affiliate serves as an investment advisor., That's correct. This company would be considered affiliated with a member bank, as it is considered an investment advisor in financial services.

12. *********** Which entity is not subject to Regulation W? A. Thrift institution B. Commercial bank C. Bank holding company D. Trust company

C. Bank holding company, That's correct. Regulation W applies to federally insured depository institutions. A bank holding company is not federally insured and does not accept deposits. (The only exclusion would be a bank that is also a bank holding company.)

6. A bank makes a loan to its mortgage banking subsidiary. Which of the following restrictions is this transaction subject to? Check all that apply.A. Quantitative B. Collateral C. None of these apply

C. None of these apply, Nonbank subsidiaries of banks are exempt from affiliate status unless the Board determines otherwise.

25. This question is based on the Big City scenario. Review the facts if you are unfamiliar with them. The Lead bank has guaranteed a $7 million investment certificate issue of PAB. This transaction is: A. In violation of both the quantitative and collateral restrictions of Regulation W. B. In violation of only the quantitative restrictions of Regulation W. C. Not in violation since PAB is excluded from the affiliate definition. D. Not in violation since guarantees are not covered transactions until they are honored.

C. Not in violation since PAB is excluded from the affiliate definition.

24. This question is based on the Big City scenario. Review the facts if you are unfamiliar with them. The Lead bank is considering purchasing a participation in a pool of loans and leases already extended by Leasing, that exceed $7 million subject to an independent evaluation of the debtor's credit worthiness. If Lead bank goes ahead with its plan, the transactions: A. Would not be subject to the quantitative restrictions of Regulation W since the purchase of loans and leases from affiliates are exempt transactions pursuant to Subpart E. B. Would be a covered transaction subject to both the quantitative and collateral restrictions of Regulation W. C. Would be a covered transaction subject to only the quantitative restrictions of Regulation W. D. Would not be a covered transaction since, under the "250.250" exemption, the participation represents an investment opportunity to LEAD BANK.

C. Would be a covered transaction subject to only the quantitative restrictions of Regulation W.

4. Larchmont Bank has $100 million in capital stock and surplus. What is the aggregate dollar limit on covered transactions with all affiliates? A. $25 million B. $10 million C. $5 million D. $20 million

D. $20 million, That's correct. The aggregate dollar limit on covered transactions with all affiliates is 20 percent of capital stock and surplus, or $20 million.

7. Regulation W prohibits a bank from purchasing securities in a principal capacity from an affiliated underwriter unless: A. The purchase was approved by a majority of the directors after the securities were issued. B. A majority of the directors of the underwriter approved the purchase before the securities were offered for sale to the public. C. The purchase was approved by the bank's primary federal regulator before the securities were issued. D. A majority of the bank's directors approved the purchase prior to the securities being offered for sale to the public.

D. A majority of the bank's directors approved the purchase prior to the securities being offered for sale to the public., That's correct. The purchase must be approved by the directors before the issuance.

8. Which of the following transactions are prohibited by Regulation W? Check all that apply. A. Advertising for the mortgage company nonbank subsidiary of a bank indicates that the bank guarantees all mortgage agreements. B. A trust agreement is in place that allows a bank to purchase stock issued by the parent company. The bank does so. C. The bank issues a letter of credit on behalf of an affiliate. D. During the underwriting, the bank purchases securities in a fiduciary capacity from the securities underwriter affiliate.

D. During the underwriting, the bank purchases securities in a fiduciary capacity from the securities underwriter affiliate. , That's correct.Regulation W prohibits a bank from purchasing securities in a fiduciary capacity from the securities underwriter affiliate during the underwriting process.

23. This question is based on the Big City scenario. Review the facts if you are unfamiliar with them. The Lead bank sold Federal funds (unsecured) to First ($300M) and Star ($200M). In regards to the collateral requirements of Regulation W, Lead bank is: A. Not in violation since they do not apply to "sister" banks. B. In violation in regards to the funds sold to both First and Star. C. Not in violation since they do not apply to Federal funds transactions. D. In violation in regards to the funds sold only to Star.

D. In violation in regards to the funds sold only to Star.

3. Which one of the following represents eligible collateral for securing a credit extension or loan guarantee to an affiliate? A. Loans on nonaccrual. B. Mortgage servicing rights. C. Parent holding company stock traded on the NYSE. D. Junior lien on real property.

D. Junior lien on real property.

"FACTS for Q's 14 thru 25, Big City Facts (1) Henry Cole owns 20 percent of Big City Bancorporation (Big City). Mr.Cole's wife owns an additional 10 percent and their minor children collectively own another 2 percent. Mr. Cole's brother, Bob, owns 15 percent of Big City. The remaining shares of the company are held by 43 other shareholders., (2) Besides his investment in Big City, Henry Cole owns (1) 65 percent of TNB, Inc. (TNB), which is the holding company for Troy National Bank (Troy), and (2) 100 percent of Ace Electronics, Inc. (Ace). He also is a 20 percent investor in his brother Bob's company, CAP, Inc. (CAP). Bob owns the remaining 80 percent of CAP and maintains a separate residence. (3) Big City is a registered bank holding company that owns the following: (a) 100 percent of Big City American Bank (the ""Lead"" bank) (i) Which owns 100 percent of PAB Lending, Inc. (PAB) (a venture capital company), (b) 100 percent of First Bank (First) (c) 70 percent of Star Bank (Star) (d) 100 percent of Big City Appraisers, Inc. (Appraisers (Real and personal property appraiser) (e) 25 percent unlimited partner in Commercial Leasing (Leasing) (Leases out personal or real property) (f) 100 percent of Big City Properties, Inc. (Properties) (Only holds property used exclusively by the subsidiary banks of BIG, CITY for bank operations) (4) The Lead bank reported the following on its latest Call Report (in thousands): Common stock $ 5,000 Surplus 30,000 Undivided profits 27,500 Allowance for loan/lease losses 5,400 (5) None of the affiliated banks are engaged in correspondent activities."

Read FACTS for Questions 14 thru 25