OCC UCE StUdy MatErial with QUEStiOnS and
COrrECt anSwErS
Preventive controls ✔✔ are designed to discourage or pre-empt errors or irregularities from occurring.
They are more cost-effective than detective controls. Credit checks, job descriptions, required
authorization signatures, data entry checks and physical control over assets to prevent their improper
use are all examples of preventive controls.
Sensitive customer information means: ✔✔ basically, any combination of information that would allow
the holder to access the customer's account. (Name, address, phone #, acct # in conjunction with SSN,
DL #, or credit card #, or PIN #)
Generally, closed-end retail loans should be classified Substandard after is is ??? days PD. ✔✔ 90 days
Closed-end retail loans should be charged off when they become ??? days PD ✔✔ 120 days
Open-end retail loans should be charged off after ??? days PD ✔✔ 180 days
1-4 family RE loans PD 90 days should be... ✔✔ - classified Substandard if LTV is over 60%-not classified if
LTV under 60%
Action for open and closed-end loans secured by Res RE PD 180 days. ✔✔ must make a current
assessment of value (less costs to sell), and charge off any excess.
Requirements of a Trust Policy under 12 CFR 9.5 ✔✔ must be written address brokerage placement
activities methods for ensuring that employees or officers do not use inside information in connection
with any desicion or recommendation to purchase or sell securities. methods to
Required reviews for fiduciary accounts (3 types) 12 CFR 9.6 ✔✔ pre-acceptance review (determine
whether they can properly administer the account) initial post-acceptance review (when a bank has
investment discretion, should review the assets of the account to ensure they are appropriate for the
account
,Can a bank with trust powers operate in any state? ✔✔ yes
Trust audit committee must consist of ✔✔ members independent of the fiduciary activities.
Can a bank place fiduciary funds awaiting investment in deposit accounts at the bank? If so, what are the
restrictions? ✔✔ Yes, but must have a rate of return consistent with applicable law and all deposits must
be FDIC insured or secured by securities as collateral.
PCA thresholds (12 CFR 6) ✔✔ Well capitalized: 10, 6, 5Adequately Capitalized: 8, 4, 4 (3 if 1
rated)Undercapitalized: 8, 4, 4 (3 if 1 rated)Significantly Undercapitalized: 6, 3, 3Critically
Undercapitalized: T1 Leverage =2%.
Definition of Total Risk-Based capital: ✔✔ T1 + T2
Lending, affiliate, Reg O, SLTV, Investment, and reliable estimate limits are measured to what? ✔✔ T1 +
T2 + excess ALLL
Investment in Fed Reserve Banks are measured to what? ✔✔ Capital stock and surplus
Investment in bank premises is measured to what? ✔✔ General limit 100% of capital stock.1 or 2 ; well
cap: 150% of T1 + T2 + excess ALLL.
Definition of a low quality asset ✔✔ rated SM or worse non-accrual 30 days PD terms renegotiated or
compromised (TDR)
When can a bank purchase a low quality asset from an affiliate? ✔✔ if they committed to the purchase
before it became low quality bank either owns (or is owned) 80% of the other bank.
Intangibles can comprise no more than ?% of T1 capital ✔✔ 100%. No more than 25% can be purchased
credit card relationships or non-mtg servicing rights
,An outside director is very involved in policy making and various Board committees. Can he be
considered an executive officer? ✔✔ No. As long as he isn't COB or a member of mgt, directors aren't
considered executive officers
Requirements of a RE lending policy (12 CFR 34, subpart D) ✔✔ - consistent with S ;S practices
appropriate for the size and complexity of the bank Reviewed and approved annually loan portfolio
diversification standards prudent underwriting standards (w/LTV limits) Loan admin pro
Aggregate limits for SLTV exceptions: ✔✔ 100% of capital. Within the limit, no more than 30% of capital
should be SLTV exceptions in all loans other than 1-4 family residential properties.
If the option is a disadvantage to the bank, what type of option is it, and what is the bank's position? ✔✔
its a call option, and the bank is in the short position.
If the option works in the bank's favor (floor on loan), what is the option type and bank position? ✔✔ it's
a put option and the bank is in the long position
c) Adequacy of a bank's liquidity depends on: ✔✔ i) Present and anticipated asset qualityii) Present and
future earnings capacityiii) Historical funding requirementiv) Current liquidity positionv) Anticipated
future funding needsvi) Options for reducing funding needs or auracting additiunal fundsvii) Sources of
funds
Methods to satisfy liquidity needs ✔✔ 1)Dispose of liquid assetsii) Increase short-term borrowing and/or
issue short-term deposit liabilitiesiii) Decrease holding of non-liquid assetsiv) Increase liabilities of a term
naturev) Increase capital funds
Higherlevel of liquidity is required when: ✔✔ (a)Recent trends show substantial reduction in large
accounts(b) Substantial deposits are short-term municipal special assessment-type accounts(c)
Substantial portion of loan portfolio consists of large static loans with little likelihood of reduction(d)
Large unused lines of credit or commitments to lend are expected to be used immediately(e)
Concentrations of credit have been extended to an industry with present or anticipated financial
problems(f)Strong relationship exists between individual demand accounts and principal employers in
the trade area who have financial problems
, Risk associated with liability management for liquidity ✔✔ (a) Purchased funds may not always be
available when needed(b) Concentrationsin funding sources increase liqnidity risk(c) Over-reliance on
liability management may:(i)cause a tendency to minimize holding of short-term securities,(ii) cause a
tendency to relax asset quality standards and(iii)result in a large concentration of short-term liabilities
supporting assets of longer maturity(d) Due to rate competition, funding costs may incrt=a:st::(e) When
national monetary tightness occurs, interest rate discrimination may develop, making the cost of
purchased funds prohibitive to all but a small number ofmoney centerbanks(f) Preoccupation with
obtaining funds at the lowest possible cost, without considering maturity distribution, greatly intensifies
the bank's exposure to IRR fluctuations.
Marginal cost of funds: ✔✔ Cost of additional funds needed to support asset growth. (Considered more
appropriate costing method)
for capital purposes, a minority interest in a consolidated subsidiary arises when the bank owns less than
___% of the sub. ✔✔ 100%
question about pledging investments to public funds ✔✔ added only the city of colorado accounts, not
state accounts.
a bank must own what percentage of a subsidiary for it to be considered an operating subsidiary? ✔✔
51%
12 CFR 1 ✔✔ Investment Securities
12 CFR 2 ✔✔ Sale of Credit Life Insurance
12 CFR 8 ✔✔ Assessment of Fees
12 CFR 11 ✔✔ Security Exchange Act Disclosures
12 CFR 12 ✔✔ Recordkeeping and Confirmation Requirements for Securities Transactions
COrrECt anSwErS
Preventive controls ✔✔ are designed to discourage or pre-empt errors or irregularities from occurring.
They are more cost-effective than detective controls. Credit checks, job descriptions, required
authorization signatures, data entry checks and physical control over assets to prevent their improper
use are all examples of preventive controls.
Sensitive customer information means: ✔✔ basically, any combination of information that would allow
the holder to access the customer's account. (Name, address, phone #, acct # in conjunction with SSN,
DL #, or credit card #, or PIN #)
Generally, closed-end retail loans should be classified Substandard after is is ??? days PD. ✔✔ 90 days
Closed-end retail loans should be charged off when they become ??? days PD ✔✔ 120 days
Open-end retail loans should be charged off after ??? days PD ✔✔ 180 days
1-4 family RE loans PD 90 days should be... ✔✔ - classified Substandard if LTV is over 60%-not classified if
LTV under 60%
Action for open and closed-end loans secured by Res RE PD 180 days. ✔✔ must make a current
assessment of value (less costs to sell), and charge off any excess.
Requirements of a Trust Policy under 12 CFR 9.5 ✔✔ must be written address brokerage placement
activities methods for ensuring that employees or officers do not use inside information in connection
with any desicion or recommendation to purchase or sell securities. methods to
Required reviews for fiduciary accounts (3 types) 12 CFR 9.6 ✔✔ pre-acceptance review (determine
whether they can properly administer the account) initial post-acceptance review (when a bank has
investment discretion, should review the assets of the account to ensure they are appropriate for the
account
,Can a bank with trust powers operate in any state? ✔✔ yes
Trust audit committee must consist of ✔✔ members independent of the fiduciary activities.
Can a bank place fiduciary funds awaiting investment in deposit accounts at the bank? If so, what are the
restrictions? ✔✔ Yes, but must have a rate of return consistent with applicable law and all deposits must
be FDIC insured or secured by securities as collateral.
PCA thresholds (12 CFR 6) ✔✔ Well capitalized: 10, 6, 5Adequately Capitalized: 8, 4, 4 (3 if 1
rated)Undercapitalized: 8, 4, 4 (3 if 1 rated)Significantly Undercapitalized: 6, 3, 3Critically
Undercapitalized: T1 Leverage =2%.
Definition of Total Risk-Based capital: ✔✔ T1 + T2
Lending, affiliate, Reg O, SLTV, Investment, and reliable estimate limits are measured to what? ✔✔ T1 +
T2 + excess ALLL
Investment in Fed Reserve Banks are measured to what? ✔✔ Capital stock and surplus
Investment in bank premises is measured to what? ✔✔ General limit 100% of capital stock.1 or 2 ; well
cap: 150% of T1 + T2 + excess ALLL.
Definition of a low quality asset ✔✔ rated SM or worse non-accrual 30 days PD terms renegotiated or
compromised (TDR)
When can a bank purchase a low quality asset from an affiliate? ✔✔ if they committed to the purchase
before it became low quality bank either owns (or is owned) 80% of the other bank.
Intangibles can comprise no more than ?% of T1 capital ✔✔ 100%. No more than 25% can be purchased
credit card relationships or non-mtg servicing rights
,An outside director is very involved in policy making and various Board committees. Can he be
considered an executive officer? ✔✔ No. As long as he isn't COB or a member of mgt, directors aren't
considered executive officers
Requirements of a RE lending policy (12 CFR 34, subpart D) ✔✔ - consistent with S ;S practices
appropriate for the size and complexity of the bank Reviewed and approved annually loan portfolio
diversification standards prudent underwriting standards (w/LTV limits) Loan admin pro
Aggregate limits for SLTV exceptions: ✔✔ 100% of capital. Within the limit, no more than 30% of capital
should be SLTV exceptions in all loans other than 1-4 family residential properties.
If the option is a disadvantage to the bank, what type of option is it, and what is the bank's position? ✔✔
its a call option, and the bank is in the short position.
If the option works in the bank's favor (floor on loan), what is the option type and bank position? ✔✔ it's
a put option and the bank is in the long position
c) Adequacy of a bank's liquidity depends on: ✔✔ i) Present and anticipated asset qualityii) Present and
future earnings capacityiii) Historical funding requirementiv) Current liquidity positionv) Anticipated
future funding needsvi) Options for reducing funding needs or auracting additiunal fundsvii) Sources of
funds
Methods to satisfy liquidity needs ✔✔ 1)Dispose of liquid assetsii) Increase short-term borrowing and/or
issue short-term deposit liabilitiesiii) Decrease holding of non-liquid assetsiv) Increase liabilities of a term
naturev) Increase capital funds
Higherlevel of liquidity is required when: ✔✔ (a)Recent trends show substantial reduction in large
accounts(b) Substantial deposits are short-term municipal special assessment-type accounts(c)
Substantial portion of loan portfolio consists of large static loans with little likelihood of reduction(d)
Large unused lines of credit or commitments to lend are expected to be used immediately(e)
Concentrations of credit have been extended to an industry with present or anticipated financial
problems(f)Strong relationship exists between individual demand accounts and principal employers in
the trade area who have financial problems
, Risk associated with liability management for liquidity ✔✔ (a) Purchased funds may not always be
available when needed(b) Concentrationsin funding sources increase liqnidity risk(c) Over-reliance on
liability management may:(i)cause a tendency to minimize holding of short-term securities,(ii) cause a
tendency to relax asset quality standards and(iii)result in a large concentration of short-term liabilities
supporting assets of longer maturity(d) Due to rate competition, funding costs may incrt=a:st::(e) When
national monetary tightness occurs, interest rate discrimination may develop, making the cost of
purchased funds prohibitive to all but a small number ofmoney centerbanks(f) Preoccupation with
obtaining funds at the lowest possible cost, without considering maturity distribution, greatly intensifies
the bank's exposure to IRR fluctuations.
Marginal cost of funds: ✔✔ Cost of additional funds needed to support asset growth. (Considered more
appropriate costing method)
for capital purposes, a minority interest in a consolidated subsidiary arises when the bank owns less than
___% of the sub. ✔✔ 100%
question about pledging investments to public funds ✔✔ added only the city of colorado accounts, not
state accounts.
a bank must own what percentage of a subsidiary for it to be considered an operating subsidiary? ✔✔
51%
12 CFR 1 ✔✔ Investment Securities
12 CFR 2 ✔✔ Sale of Credit Life Insurance
12 CFR 8 ✔✔ Assessment of Fees
12 CFR 11 ✔✔ Security Exchange Act Disclosures
12 CFR 12 ✔✔ Recordkeeping and Confirmation Requirements for Securities Transactions
