CELS
Explain modified duration
Modified duration is used to measure interest rate risk sensitivity
The modified duration of a security may be interpreted as the percent change in its price given a parallel shift in the yield curve
The two types of blanket bond insurance limits
Single loss limit
Aggregate loss limit
The purpose of an external audit
Ensure financial statements are prepared in accordance with GAAP and to alert management of any significant deficiencies in internal controls over financial reporting
Identify the number of members of the FDIC Board of Directors and the way they can be appointed
There are 5 members on the FDIC's Board of Directors:
-Comptroller of the Currency (Director of OCC)
-Director of CFPB
-3 members appointed by the President
*No more than 3 members can be from the same political party
**The chairman serves for 5 years and the rest serve for 6
Purpose of a Trust exam
To determine if the banks operations or administration of accounts have increased contingent liabilities (i.e. damages form lawsuits due to inappropriate handling of trusts) and to assess whether there are any direct liabilities or estimated losses (identify risks to the bank's capital position)
Explain effective duration
Effective duration is a calculation for bonds with embedded options
It takes into account that expected cash flows will fluctuate as interest rates change
The time frame losses should be reported to the bonding company
Within 30 days of DISCOVERY
Explain the difference between internal controls and internal audit
Internal controls are designed to provide reliable financial reporting, safeguard assets, and ensure compliance with laws and regulations
Internal audits help directors and officers evaluate the adequacy of internal control stystems
$100 billion
Bank A has 8 directors. Bank B has 5 directors. How may directors of Bank B have to be directors of Bank A in order to be considered an affiliate under Section 23(A)?
5 directors
Identify the duration analysis technique that is most effective for instruments with embedded options
Effective duration
Basis of claims for blanket bonds (two types)
Loss sustained - insurance company is liable only to the extent of coverage for losses sustained during the period the bond was in force
Discovery basis - insurance company is liable for up to the full amount of the policy for losses covered by terms of the bond while the bond is in force, regardless of the date when the loss was actually sustained
Explain an ideal reporting structure for an internal auditor
The internal audit manager (or person responsible for the internal audit), should be independent of the internal control system, and should report directly to the audit committee regarding both audit issues and administrative matters (ex. resources, budget, appraisals, compensation)
However, the internal audit manager CAN report to a member of management for administrative matters and the Audit Committee for everything else
The minimum level of the deposit insurance fund
1.35 percent of INSURED deposits (DIF is not there yet)
The Dodd-Frank Act established a minimum designated reserve ratio. If the designated reserve ratio goes below, or plans to go below, the FDIC must adopt a plan to get at or above 1.35 percent within 8 years.
Dodd-Frank increased the minimum reserve ratio for the DIF from 1.15 percent to 1.35 percent and required that the reserve ratio reach 1.35 percent by September 30, 2020.
The 2003 Inter-agency Policy Statement on the Internal Audit Function and its Outsourcing provides guidance on (4 parts):
Part I - the internal audit function
Part II - internal audit outsourcing arrangements
Part III - independence of the independent public accountant
Part IV - examination guidance
Explain the difference between forward and future contracts
Forwards and futures are contracts for delayed delivery of securities
Forward contracts are traded OTC
Futures are standardized forward contracts that are widely traded on an exchange
Identify which of the following is NOT a consideration when determining how much fidelity insurance a bank should purchase:
-The amount of deposits held at the bank
-The employee turnover rate
-The number of new branches planned to open in the next year
-The number of times the institution has been robbed within the past year
The number of times the institution has been robbed within the past year
Identify the five components that should be addressed in the internal control program
Control activities
Information and communication
Monitoring
Control environments
Risk assessments
The restriction set in Section 38 that applies to all banks REGARDLESS of PCA category
Banks cannot pay capital distributions or management fees that would cause the bank to become undercapitalized
A bank made a $750,000 commercial loan to a director. The bank's capital and surplus equals $20,000,000. The loan was approved by a majority of the Board without the director present. Determine whether this is appropriate and explain why or why not.
Yes
-The loan was approved by the board without the directors participation
-Less than the individual lending limit
The key difference between a capital directive and a PCA directive is the requirement that the FDIC may impose under each directive
Under a capital directive, the FDIC is largely limited to requiring the institution to recapitalize and submit a capital restoration plan
Under a PCA directive, the FDIC can impose requirements ranging form recapitalization to restricting activities
Six common clauses found on Standard Form 24 for Blanket Bonds
Clause (A) - Fidelity
Clause (B) - On Premises
Clause (C) - In Transit
Clause (D) - Forgery or Alteration
Clause (E) - Securities
Clause (F) - Counterfeit Currency
All insured depository institutions that have $500 million or more in total assets at the beginning of their fiscal year are subject to the annual audit and reporting requirements of Section 36 of the FDI Act which is implemented by Part 363.
Appendix A to Part 363 states that the bank's accountant must comply with the AICPA's Code of Professional Conduct and meet the independence requirements of the SEC and its staff. Therefore, each insured depository institution with assets of $500 million or more, whether or NOT it is a public company, must comply with the independence provisions contained in the Sarbanes-Oxley Act of 2002.
Identify the following sections:
8(a)
8(b)
8(c)
8(e)
8(g)
8(i)
8(a) - Termination of Insurance
8(b) - Cease and Desist
8(c) - Temporary Cease and Desist
8(e) - Removal and Prohibition Order
8(g) - Temporary Removal / Suspension
8(i) - Civil Money Penalties
Transaction risk
Operational risk
Reputation risk
Compliance risk
Other risk
Credit risk
Strategic risk