Rules and Regulations
The five minimum appraisal standards:
-State licensed or certified appraisers
-Conform to USPAP standards
-Be based on the definition of market value
-Written and contain sufficient information to support the bank's decision to enter the transactions
-Appropriate deductions and discoutns
The minimum number of directors for a new institution.
A new institution must have a minimum of 5 directors
ASC 450 provides guidance on:
-Provides basic guidance for recognition of a loss contingency, such as the "collectability" of loans (receivables), when it is probable that a loss has been incurred and the amount can be reasonably estimated
Responsibilities of management
-Implement Board approved policies
-Manage daily operations
A violation caused a significant loss to the bank. The violation was knowingly committed. Calculate the volume of CMPs that COULD have been assets to the bank if they have $50 million in Total Assets.
$500,000
Three international lending risks identified in the RMS manual:
-Country risk
-Credit risk
-Currency risk
The minimum capital necessary to start a bank:
$2,000,000 after start-up exenses
Types of agricultural lending:
-Production or operating loans
-Feeder livestock loans
-Breeder stock loans
-Machinery and equipment loans
-Farm real estate acquisition loans
-Carryover loans
Explain Letters of Credit and list four types
-Travelers
-Sold for cash (not contingent liability, but demand deposit)
-Commercial - used to facilitate trade
-Standby - irrevocable commitment on bank to make payment to beneficiary
A bank's Capital Conservation Buffer is 2.50 percent as of March 31, 2019. Find their maximum payout ratio for dividends.
60 percent
Less than well-capitalized institutions are limited to paying no more than ____ basis points.
75 basis points
Four primary causes of violations:
-Unfamiliarity
-Negligence
-Misinterpretation
-Willful non-compliance
-When based on current information and events, it is unlikely that you will be able to collect all amounts due in the contractual terms
*Impairment analysis should be completed based upon the appropriate method of:
Present value of cash flow
Collateral
Observable market price
The regulation that regulates the required level of cash reserves
Federal Reserve Board Regulation D regulates the required level of cash reserves
Given the following ratios, calculate the banks Capital Conservation Buffer.
Common Equity Tier 1 (CET1) = 7.00%
Tier 1 Risk-Based Capital = 7.50%
Total Risk-Based Capital = 9.00%
The bank's Capital Conservation Buffer is 1.00%
Section 337.____ implements Regulation O for state nonmember banks.
Section 337.3 implements Regulation O for state nonmember banks.
Reasons Civil Money Penalties can be assessed:
-Violation of any law or regulation
-Final or temporary order issued (8(b) or (c))
-Written condition in application
-Written agreement
Purpose of an express determination letter:
-A special tax rule that permits a bank to recognize charged-off loans pursuant to specific orders of supervisory authorities or that are classified loss
-Tax rules require that the bank's primary federal regulator attest:
The institution maintains and applies loan loss classification standards that are consistent with regulatory standards
-Banks must request an express determination letter at each FDIC exam. If this is not received, then the tax book method is revoked going forward. The bank can still write-off loans but the burden of proof is on the bank
Regulation F requires:
-Banks must have policies to prevent excessive exposure to any individual correspondent
-Banks must limit overnight credit exposure to a correspondent to 25% of the exposed banks total capital unless the correspondent is at least adequately capitalized
-Must demonstrate that the correspondent is at least adequately capitalized on a quarterly basis
-When a correspondent bank is not at least adequately capitalized, banks should reduce their credit exposure to the 25 percent level within 120 days after the date when the current Call Report or other relevant report would be available
Use the following balance sheet data to calculate that bank's GAP ratio:
The bank's GAP ratio is 11.11%
Each insured state nonmember bank is required to have these four security devices, at a minimum:
-A means of protecting cash or other liquid assets, such as a vault, safe, or other secure space
-A lighting system for illuminating, during the hours of darkness, the area around the vault, if the vault is visible from outside the banking office
-Tamper-resistant locks on exterior doors and windows that may be opened
-Any other devices the security officer deems appropriate
The Civil Money Penalties (CMPs) that COULD be assessed for filing false Call Reports (Inadvertent, False or Misleading, Knowingly or Recklessly with Disregard):
-Inadvertent - NOT MORE THAN $3,200 per day
-False or misleading (not inadvertent) - $32,000 per day
-Knowingly or recklessly with disregard - lesser of $1,425,000 or 1% of TA
A Uniform Commercial Code (UCC) lien is good for (time period):
-UCC-1 is good for 5 years; continuations can be filed during the last 6-months of the 5 years.
-Filing a continuation makes the UCC good for another 5-years from the end of the prior five years
A subsidiary bank has assets of $4 billion. It received a "3" rating at the most recent Safety and Soundness exam. It elects to file the financial statements of its holding company in lieu of its own separate audited financial statements. It also elects to comply with all other Part 363 requirements at the holding company level. This would or would not be a violation. Explain.
This would not be a violation.
A bank has a 3-year $1,000 bond with a 10% coupon and 10% yield. Calculate the Macauley and Modified Duration for this instrument.
Year | Payment | PV | T | PV*T |
1 | $100 | $90.9 | 1 | 90.9 |
2 | $100 | $82.6 | 2 | 165.20 |
3 | $1,100 | $826.4 | 3 | 2,479.3 |
Total | $1,300 | $1,000 | 2,735.4 |
Macauley duration =2.74
Modified duration = 2.49