Question 1

First National Bank made a loan to a nonbank affiliate of its holding company that is secured by stocks, bonds, and debentures. At the outset of the loan, First National had collateral with a market value equal to 150 percent of the loan amount. Over time, some of the collateral has been retired and amortized. Some has dropped in value. What is the responsibility of the bank regarding the collateral?

Accepted Answer

The bank must check values when the collateral is retired or amortized to make sure the collateral is replaced with securities that will bring the loan into compliance with the percentages required in the law. This is necessary to ensure that the bank is not exposed to excessive credit risk and to comply with regulatory requirements. Checking the values every month or annually is not necessary unless there is a significant change in the value of the collateral or if it is required by regulatory agencies.

Question 2

A bank has given a customer a merchandise gift with a fair market value of $25.00 for opening a deposit account. Which of the following statements describes the proper reporting status of this gift?

Accepted Answer

The fair market value of the gift is considered taxable income and should be reported on Form 1099-INT along with any interest paid on the account. The fact that it is a gift does not exempt it from being reported to the IRS.

Question 3

Which of the following groups of employees should be trained on the detailed use of W-9 forms?

Accepted Answer

New account officers are responsible for obtaining and verifying W-9 forms from clients, so they should be trained on the detailed use of these forms. Senior management and security officers do not typically handle client forms, and while auditors and accountants may work with W-9 forms, they would likely already have this knowledge as part of their job responsibilities.

Question 4

Which of the following sets of policies or procedures is NOT a requirement of a security program?

Accepted Answer

The answer of Which of the following sets of policies...

Question 5

On which of the following loans does First Savings Bank NOT have to provide a 1098-E (Student Loan Interest) report?

Accepted Answer

The loan to Paul and Rhonda Pena and their daughter Jennifer is not a qualified student loan because it is used to pay for tuition at a private high school.

Question 6

First National Bank and Fidelity Bank are subsidiaries of Bank Holding Company, Inc. Fidelity is planning to sell First National two loan participations. It has been Fidelity's practice for several years to sell overlines to First National. • Loan A has been on Fidelity's books for two years. It is a line of credit that will be over Fidelity's loan limit with its next advance. It was recently classified as special mention during a safety and soundness examination. First National agreed to purchase overlines on Loan A before Fidelity's funding of the loan two years ago and signed a participation agreement at that time. • Loan B is 60 days past due for a principal payment, although interest payments are current. The loan has been on the books at Fidelity for one year. First National agreed to purchase overlines on Loan B six months ago. Which, if any, of these loans can First National purchase?

Accepted Answer

Loan A can be purchased because First National agreed to the participation before the loan was classified as special mention, and it is not yet a low-quality asset. Loan B is past due, making it a low-quality asset, which cannot be purchased.

Question 7

First National Bank would like to make a loan to an affiliate bank. Which of the following would NOT be acceptable as collateral for such a loan?

Accepted Answer

An account for the benefit of First National held at the affiliate bank in an amount equal to the loan amount cannot be accepted as collateral because it essentially means that First National Bank would be lending to itself through the affiliate bank. This would not provide any real security for First National Bank in the event of default. All the other options listed provide tangible assets that can be sold or redeemed to recoup the loan amount.

Question 8

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 but not in the same town. 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 RMS 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.

Accepted Answer

Relationship B does not violate Regulation L because the two institutions are not in the same city and they do not have the same amount of assets. The sharing of a board member alone is not enough to violate Regulation L. Relationships A and C may violate Regulation L because they involve institutions that share a board member and may be in the same city or have similar asset sizes.

Question 9

According to federal regulations, what must a security officer do when establishing a bank security program?

Accepted Answer

According to federal regulations, in establishing a bank security program, a security officer must institute procedures for testing security devices periodically to ensure their functionality and effectiveness. The other options listed are not required by federal regulations and may not be practical or effective approaches to enhancing bank security.

Question 10

First National Bank is a wholly owned subsidiary of Bank Holding Company, Inc. Which of the following companies is NOT an affiliate of First National Bank?

Accepted Answer

The answer of First National Bank is a wholly owned...

Question 11

A member bank wants to sell assets to an affiliated bank that is 100 percent owned by the same bank holding company. Is this transaction allowed?

Accepted Answer

According to the Federal Reserve Act, a member bank may sell assets to an affiliated bank that is 100 percent owned by the same bank holding company without any limit, as long as the assets are not low quality.

Question 12

Which of the following interest-bearing accounts is EXEMPT from Form 1099 annual information reporting requirements under IRS regulations?

Accepted Answer

Individual retirement accounts (IRAs) are exempt from Form 1099 annual information reporting requirements under IRS regulations.

Question 13

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

Accepted Answer

An automatically renewable time deposit account may be considered unclaimed property if the customer has not made any deposits or withdrawals from the account or any other account at the same bank, indicating inactivity.

Question 14

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?

Accepted Answer

The answer of A current member of the board of...

Question 15

First National Bank is a newly chartered bank. Which of the following security related procedures is NOT required under the Bank Protection Act?

Accepted Answer

Newly chartered banks are not required to hire a security consultant to inspect the bank for the effectiveness of the bank's security devices under the Bank Protection Act. However, they are required to appoint a security officer, write a security program and write procedures to assist in preserving evidence of crimes.

Question 16

Which of the following types of security devices is required for each bank, at minimum, under the Bank Protection Act?

Accepted Answer

The Bank Protection Act requires tamper-resistant locks on exterior windows and doors as a minimum security requirement for each bank. Full-time security guards, vault doors made of steel, and bullet-proof glass are not explicitly mandated by the act.

Question 17

Which of the following practices is authorized by the Federal Reserve Act?

Accepted Answer

The Federal Reserve Act authorizes a bank to purchase assets in its fiduciary capacity if the fiduciary instrument allows for such a purchase. The other choices are not authorized by the Federal Reserve Act.

Question 18

A national bank may make a loan to an affiliated mortgage company that is 100 percent owned by the same bank holding company, if the aggregate amount of all covered transactions of the national bank and its subsidiaries does not exceed a certain percentage of capital and surplus of the national bank. What is that percentage?

Accepted Answer

According to Regulation W of the Federal Reserve, the percentage limit for covered transactions between a national bank and its subsidiaries is 20 percent of the capital and surplus of the national bank. Therefore, choice C is the correct answer.

Question 19

Trust Co. and First National Bank are located in the same city and each has assets of over $20 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?

Accepted Answer

The answer of Trust Co. and First National Bank are...

Question 20

Which of the following items is considered a low-quality asset?

Accepted Answer

An asset in nonaccrual status is considered a low-quality asset as it means the borrower is not making payments and it is unlikely that the bank will receive the full principal amount. Option B is considered a delinquent loan but not necessarily low quality. Option C indicates that the bank is proactively managing the asset, and it may or may not be low quality depending on the specific circumstances.

Exam 1: Certified Regulatory Compliance Manager