OCC UCE Study Material || Ultimate Study Guide:
Exam-Ready in Less Time!!
Preventive controls correct answers 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.
Detective controls correct answers are designed to search for and identify errors after they
have occurred. They are more expensive than preventive controls, but still essential since
they measure the effectiveness of preventive controls and are the only way to effectively
control certain types of errors. Account reviews and reconciliations, observations of payroll
distribution, periodic physical inventory counts, passwords, transaction edits and internal
auditors are all examples of detective controls.
Corrective controls correct answers are designed to remedy the circumstances that allowed
the unauthorized activity or return conditions to what they were before the violation. They
begin when improper outcomes occur and are detected and keep the spotlight on the problem
until management can solve the problem or correct the defect. Quality circle teams and
budget variance reports are examples of corrective controls.
Bank control systems include: correct answers Auditing procedures Internal Control
procedures AQ/Loan reviews Risk management Compliance mgt
Goals of the overall control system: correct answers help maintain authority recognize and
identify the need for timely reporting and information.
Goals of an internal controls system correct answers protect bank assets assure integrity of
financial and operating records. Promote operatin
Effective audit program depends on: correct answers competence and independence of
auditor proper audit scope adequate procedures
4 types of opinioned audits correct answers Unqualified ; FS fairly presents financial
condition Qualified ; phrases like except for and subject to -
Board responsibilities: correct answers Select competent executive officers Effectively
supervise bank affairs Adopt and follow s
Director responsibilities: correct answers be aware of the bank ;s operating environment be
diligent in performing director duties b
Chapter 7 bankruptcy correct answers complete liquidation of assets to pay off debt.
Remaining debt is discharged can be filed by individuals, corporations, and partnerships
Chapter 11 bankruptcy: correct answers available to individuals, corporations, and
partnerships, but primarily used for businesses. Allows debtor to remain in operation while
being sh
,Chapter 13 bankruptcy: correct answers Wage-earner plan, available only to individuals Debt
reorganization to allow repayment under 3-5 year plan.
12 CFR 112 USC 24 correct answers Investment Securities
12 CFR 3 correct answers Capital Adequacy Standards: Minimum Capital Ratios, Issuance of
Directives
12 CFR 5 correct answers Rules Policies and procedures for corporate activities
12 CFR 6 correct answers Prompt Corrective Action
12 CFR 7 correct answers Bank activities and operations
12 CFR 9 correct answers Fiduciary activities (Trust) for National Banks
12 CFR 21 correct answers Minimum Security Devices and Procedures, Suspicious activity
reports (SARs), The Bank Secrecy Act (BSA) compliance program
12 CFR 22 correct answers loans in areas having special flood hazards
12 CFR 25 correct answers CRA, Interstate Deposit Production
12 CFR 30 correct answers Safety and Soundness Standards Appendix A ; Interagency Safety
and Soundness standards Appendix B ; Information Security Program
12 CFR 31 correct answers Extensions of credit to insiders and transactions with affiliates
12 CFR 32 and 12 USC 84 correct answers Lending Limits
12 CFR 34 correct answers Real Estate Lending and Appraisals---Part A: General---Part B:
Adjustable Rate Mortgages----Part C: Appraisals-----Part D: RE lending standards-----Part E:
OREO
12 CFR 40 correct answers Privacy of Consumer Financial Information
12 CFR 206 (Reg F) correct answers Interbank Liabilities
12 CFR 215 (Reg O) correct answers Loans to Executive Officers, Directors, and Principal
Shareholders of member banks
12 CFR 221 (Reg U) correct answers Credit by banks and other persons for the purposes of
carrying margin stock
12 CFR 223 (Reg W)12 USC 371(c) correct answers Transactions between member banks
and their affiliates
12 CFR 337 correct answers Unsafe and Unsound Practices
, 12 CFR 363 correct answers Annual independent audits and reporting requirements
(Sarbanes Oxley)
12 USC 56 correct answers Prohibition of withdrawal of capital, unearned dividends (can not
dividend more than retained earnings)
12 USC 60 correct answers National bank dividends (can ;t pay more than current year
earnings + past 2 years)
12 USC 161 correct answers Reports to the Comptroller (call reports)
12 USC 282 correct answers Investment in Federal Reserve Banks
12 USC 371(d) correct answers Investment in Bank Premises
Special Mention correct answers Potential Weakness that deserves mgt close attention. If left
uncorrected, potential weaknesses may result in deterioration of repayment prospects. Not
adversely classified and do not expose bank to sufficient risk to warrant adverse classification
Substandard correct answers Inadequately protected by the current sound worth and paying
capacity of the obligor or of the collateral pledged. Well-defined weakness that jeopardize
liquidation of the debt. Distinct possibility that the bank will sustain some loss if the
deficiencies are not corrected.
Doubtful correct answers All the weaknesses inherent in substandard, with the added
characteristic that the weaknesses make collection or liquidation in full, on the basis of
currently existing facts, highly questionable and improbable. Specific pending event may
strengthen the asset, so loss is deferred. Must be non-accrual
Loss correct answers Uncollectible and of such little value that their continuance as a
bankable asset is not warranted. Does not mean the asset has no recovery or salvage value,
but it is not practical or desirable to defer write-off of a basically worthless asset even though
partial recovery could occur in the future.
Non-accrual correct answers Loan is maintained on cash basis due to deterioration of
borrower. orFull payment of Principal AND interest is not expected. orP ;I over 90 days PD,
unless the loan is well-secured and in the process of collection.
Accounting entries for non-accrual correct answers 1. Reverse ALL unpaid interest by:
CREDIT -- ACCRUED INTEREST RECEIVABLE
2. Reverse uncollected interest (accrued during YTD) by:
DEBIT - INTEREST AND FEE INCOME ON LOANS
3. Reverse uncollected interest during previous year by:
DEBIT - ALLOWANCE FOR LOAN AND LEASE LOSSES
This method presumes bank management's additions to the ALLL through charges to the
"provision for loan and lease losses" on income statement have been based on an evaluation
Exam-Ready in Less Time!!
Preventive controls correct answers 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.
Detective controls correct answers are designed to search for and identify errors after they
have occurred. They are more expensive than preventive controls, but still essential since
they measure the effectiveness of preventive controls and are the only way to effectively
control certain types of errors. Account reviews and reconciliations, observations of payroll
distribution, periodic physical inventory counts, passwords, transaction edits and internal
auditors are all examples of detective controls.
Corrective controls correct answers are designed to remedy the circumstances that allowed
the unauthorized activity or return conditions to what they were before the violation. They
begin when improper outcomes occur and are detected and keep the spotlight on the problem
until management can solve the problem or correct the defect. Quality circle teams and
budget variance reports are examples of corrective controls.
Bank control systems include: correct answers Auditing procedures Internal Control
procedures AQ/Loan reviews Risk management Compliance mgt
Goals of the overall control system: correct answers help maintain authority recognize and
identify the need for timely reporting and information.
Goals of an internal controls system correct answers protect bank assets assure integrity of
financial and operating records. Promote operatin
Effective audit program depends on: correct answers competence and independence of
auditor proper audit scope adequate procedures
4 types of opinioned audits correct answers Unqualified ; FS fairly presents financial
condition Qualified ; phrases like except for and subject to -
Board responsibilities: correct answers Select competent executive officers Effectively
supervise bank affairs Adopt and follow s
Director responsibilities: correct answers be aware of the bank ;s operating environment be
diligent in performing director duties b
Chapter 7 bankruptcy correct answers complete liquidation of assets to pay off debt.
Remaining debt is discharged can be filed by individuals, corporations, and partnerships
Chapter 11 bankruptcy: correct answers available to individuals, corporations, and
partnerships, but primarily used for businesses. Allows debtor to remain in operation while
being sh
,Chapter 13 bankruptcy: correct answers Wage-earner plan, available only to individuals Debt
reorganization to allow repayment under 3-5 year plan.
12 CFR 112 USC 24 correct answers Investment Securities
12 CFR 3 correct answers Capital Adequacy Standards: Minimum Capital Ratios, Issuance of
Directives
12 CFR 5 correct answers Rules Policies and procedures for corporate activities
12 CFR 6 correct answers Prompt Corrective Action
12 CFR 7 correct answers Bank activities and operations
12 CFR 9 correct answers Fiduciary activities (Trust) for National Banks
12 CFR 21 correct answers Minimum Security Devices and Procedures, Suspicious activity
reports (SARs), The Bank Secrecy Act (BSA) compliance program
12 CFR 22 correct answers loans in areas having special flood hazards
12 CFR 25 correct answers CRA, Interstate Deposit Production
12 CFR 30 correct answers Safety and Soundness Standards Appendix A ; Interagency Safety
and Soundness standards Appendix B ; Information Security Program
12 CFR 31 correct answers Extensions of credit to insiders and transactions with affiliates
12 CFR 32 and 12 USC 84 correct answers Lending Limits
12 CFR 34 correct answers Real Estate Lending and Appraisals---Part A: General---Part B:
Adjustable Rate Mortgages----Part C: Appraisals-----Part D: RE lending standards-----Part E:
OREO
12 CFR 40 correct answers Privacy of Consumer Financial Information
12 CFR 206 (Reg F) correct answers Interbank Liabilities
12 CFR 215 (Reg O) correct answers Loans to Executive Officers, Directors, and Principal
Shareholders of member banks
12 CFR 221 (Reg U) correct answers Credit by banks and other persons for the purposes of
carrying margin stock
12 CFR 223 (Reg W)12 USC 371(c) correct answers Transactions between member banks
and their affiliates
12 CFR 337 correct answers Unsafe and Unsound Practices
, 12 CFR 363 correct answers Annual independent audits and reporting requirements
(Sarbanes Oxley)
12 USC 56 correct answers Prohibition of withdrawal of capital, unearned dividends (can not
dividend more than retained earnings)
12 USC 60 correct answers National bank dividends (can ;t pay more than current year
earnings + past 2 years)
12 USC 161 correct answers Reports to the Comptroller (call reports)
12 USC 282 correct answers Investment in Federal Reserve Banks
12 USC 371(d) correct answers Investment in Bank Premises
Special Mention correct answers Potential Weakness that deserves mgt close attention. If left
uncorrected, potential weaknesses may result in deterioration of repayment prospects. Not
adversely classified and do not expose bank to sufficient risk to warrant adverse classification
Substandard correct answers Inadequately protected by the current sound worth and paying
capacity of the obligor or of the collateral pledged. Well-defined weakness that jeopardize
liquidation of the debt. Distinct possibility that the bank will sustain some loss if the
deficiencies are not corrected.
Doubtful correct answers All the weaknesses inherent in substandard, with the added
characteristic that the weaknesses make collection or liquidation in full, on the basis of
currently existing facts, highly questionable and improbable. Specific pending event may
strengthen the asset, so loss is deferred. Must be non-accrual
Loss correct answers Uncollectible and of such little value that their continuance as a
bankable asset is not warranted. Does not mean the asset has no recovery or salvage value,
but it is not practical or desirable to defer write-off of a basically worthless asset even though
partial recovery could occur in the future.
Non-accrual correct answers Loan is maintained on cash basis due to deterioration of
borrower. orFull payment of Principal AND interest is not expected. orP ;I over 90 days PD,
unless the loan is well-secured and in the process of collection.
Accounting entries for non-accrual correct answers 1. Reverse ALL unpaid interest by:
CREDIT -- ACCRUED INTEREST RECEIVABLE
2. Reverse uncollected interest (accrued during YTD) by:
DEBIT - INTEREST AND FEE INCOME ON LOANS
3. Reverse uncollected interest during previous year by:
DEBIT - ALLOWANCE FOR LOAN AND LEASE LOSSES
This method presumes bank management's additions to the ALLL through charges to the
"provision for loan and lease losses" on income statement have been based on an evaluation
