OCC UCE DECK 1 Exam with Answers 100% Correct
Goal of the overall control system? ✔✔ help maintain authority, recognize and identify the need for
timely reporting and information
One of the combination rules under the legal lending limit is the direct benefit rule. What is it? ✔✔ This
happens when loan proceeds will be deemed to be used for the direct benefit of another person and will
be attributed to that other person.
One of the combination rules under the legal lending limit is the common enterprise rule. What is it?
✔✔ This happens when loans made to two separate people have to be aggregated because 1. the
expected source or repayment is the same and neither borrower has another source of income 2.
borrowers are related directly or indirectly through common control 3. substantial financial
interdependence exists between or among the borrowers i.e. 50% or more of one borrowers annual
gross receipts or expenditures are derived from transactions with that borrower 4. separate persons
borrower money to acquire a business enterprise of which those borrowers will together own more than
50% of the voting securities of that company
For legal lending limit purposes, how are loans to partnerships handled? ✔✔ Loans to partnerships are
considered loans to each individual unless the limited partnership or it is stated in the contract that the
member is not liable for debts as is the case of a limited partner and loans to each member are not
considered loans to the partnership or other members unless the direct benefit rule or common
enterprise exists
For legal lending limit purposes what are the rules for corporate groups? ✔✔ Can't lend more than 50%
of capital to a corporation and all of its subsidiaries combined 2. LLCs are treated like corporations no
partnerships 3. 50% of government
For legal lending limit purposes what is a non-conforming loans? ✔✔ A loan would be considered non-
conforming if, when the loan was made conformed to the legal lending limit, but capital has since
decreased and is no longer below the legal lending limit
Name four reasons a loan could be non-conforming for legal lending limit purposes ✔✔ 1. capital has
decreased 2. borrowers or bank's merge 3. legal lending limit or capital rules change 4. collateral declines
in value
, If a bank has a non conforming loan for legal lending limit purposes is it a violation of law? ✔✔ Generally
no, but the bank must make reasonable efforts to bring the loan into conformance. If it is because of a
collateral value decline, the bank has 30 days to bring the loan into conformance
What amount of liability does a director have for loans over the legal lending limit ✔✔ The full amount
over the legal lending limit
For legal lending limit purposes, what is a qualifying commitment to lend? ✔✔ A qualifying commitment
to lend occurs when a loan, including unfunded commitments, would put the loan above the legal
lending limit, but the current balance has not hit the legal lending limit yet.
Definition of Special Mention ✔✔ Potential weakness that deserves managements close attention. If left
uncorrected, potential weaknesses may result in deterioration of repayment prospects.
What is the definition of Substandard ✔✔ A loan that is inadequately protected by the current sound
worth and paying capacity of the obligor or the collateral pledged. Well-defined weakness that
jeopardize liquidation of the debt. There is a distinct possibility that the bank will sustain some loss if the
deficiencies are not corrected.
What is the definition of doubtful? ✔✔ A loan with all the weaknesses that are inherent in a substandard
loan with the added characteristic that the weakness makes the collection in full, on the basis of current
existing facts, highly questionable and improbable. A specific pending event should be in process.
Doubtfull loans must be on nonaccrual.
What is the definition of a loss loan? ✔✔ Uncollectable and of such little value that their continuance as
a bankable asset is not warranted. It does not mean the asset has no recovery or salvage value, but it is
not pratical or desirable to defer the write-off of a basically worthless asset, even if recovery could
happen in the future.
What are three ways a bank can get OREO ✔✔ 1. Debt previously contracted i.e. deed in lieu,
foreclosure, sherrifs sale 2. property formerly, but no longer used for bank premises 3. property formerly
acquired with intentions of being used as bank premises, but not anymore.
Goal of the overall control system? ✔✔ help maintain authority, recognize and identify the need for
timely reporting and information
One of the combination rules under the legal lending limit is the direct benefit rule. What is it? ✔✔ This
happens when loan proceeds will be deemed to be used for the direct benefit of another person and will
be attributed to that other person.
One of the combination rules under the legal lending limit is the common enterprise rule. What is it?
✔✔ This happens when loans made to two separate people have to be aggregated because 1. the
expected source or repayment is the same and neither borrower has another source of income 2.
borrowers are related directly or indirectly through common control 3. substantial financial
interdependence exists between or among the borrowers i.e. 50% or more of one borrowers annual
gross receipts or expenditures are derived from transactions with that borrower 4. separate persons
borrower money to acquire a business enterprise of which those borrowers will together own more than
50% of the voting securities of that company
For legal lending limit purposes, how are loans to partnerships handled? ✔✔ Loans to partnerships are
considered loans to each individual unless the limited partnership or it is stated in the contract that the
member is not liable for debts as is the case of a limited partner and loans to each member are not
considered loans to the partnership or other members unless the direct benefit rule or common
enterprise exists
For legal lending limit purposes what are the rules for corporate groups? ✔✔ Can't lend more than 50%
of capital to a corporation and all of its subsidiaries combined 2. LLCs are treated like corporations no
partnerships 3. 50% of government
For legal lending limit purposes what is a non-conforming loans? ✔✔ A loan would be considered non-
conforming if, when the loan was made conformed to the legal lending limit, but capital has since
decreased and is no longer below the legal lending limit
Name four reasons a loan could be non-conforming for legal lending limit purposes ✔✔ 1. capital has
decreased 2. borrowers or bank's merge 3. legal lending limit or capital rules change 4. collateral declines
in value
, If a bank has a non conforming loan for legal lending limit purposes is it a violation of law? ✔✔ Generally
no, but the bank must make reasonable efforts to bring the loan into conformance. If it is because of a
collateral value decline, the bank has 30 days to bring the loan into conformance
What amount of liability does a director have for loans over the legal lending limit ✔✔ The full amount
over the legal lending limit
For legal lending limit purposes, what is a qualifying commitment to lend? ✔✔ A qualifying commitment
to lend occurs when a loan, including unfunded commitments, would put the loan above the legal
lending limit, but the current balance has not hit the legal lending limit yet.
Definition of Special Mention ✔✔ Potential weakness that deserves managements close attention. If left
uncorrected, potential weaknesses may result in deterioration of repayment prospects.
What is the definition of Substandard ✔✔ A loan that is inadequately protected by the current sound
worth and paying capacity of the obligor or the collateral pledged. Well-defined weakness that
jeopardize liquidation of the debt. There is a distinct possibility that the bank will sustain some loss if the
deficiencies are not corrected.
What is the definition of doubtful? ✔✔ A loan with all the weaknesses that are inherent in a substandard
loan with the added characteristic that the weakness makes the collection in full, on the basis of current
existing facts, highly questionable and improbable. A specific pending event should be in process.
Doubtfull loans must be on nonaccrual.
What is the definition of a loss loan? ✔✔ Uncollectable and of such little value that their continuance as
a bankable asset is not warranted. It does not mean the asset has no recovery or salvage value, but it is
not pratical or desirable to defer the write-off of a basically worthless asset, even if recovery could
happen in the future.
What are three ways a bank can get OREO ✔✔ 1. Debt previously contracted i.e. deed in lieu,
foreclosure, sherrifs sale 2. property formerly, but no longer used for bank premises 3. property formerly
acquired with intentions of being used as bank premises, but not anymore.
