VULLO MIDTERM BANKING EXAM
QUESTIONS AND ANSWERS GRADED A+
2025/2026
What created a central bank of the United States? - ANS Federal Reserve Act of 1913
What is the Central Bank in the U.S. - ANS The Federal Reserve
Why does Bank Regulation Exist? - ANS To protect customer deposits; payments of goods and
services; fairness; and protection from financial crime.
Can only call yourself a bank if: - ANS you can withdraw on demand
If creating an agency that is a regulator you want to give it what? - ANS 1. Rulemaking; 2.
Supervisory; 3. Enforcement
What did the National Currency Act of 1863 & National Bank Act of 1864 do? - ANS Creates
Uniform National Currency; Creates OCC as chartering authority; Created the Dual Banking
System
What is the Dual Banking System? - ANS Bank has a choice of either a state charter or OCC
charter
What Act discusses the affiliate rules? - ANS Federal Reserve Act
1 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
, Financial holding companies can create subsidiaries that do - ANS Securities underwriting;
Securities broker-dealer; Insurance agency; Insurance underwriting; Merchant banking
Financial subsidiaries of a bank can do - ANS Securities underwriting; Securities broker-
dealer; Insurance Agency; Merchant Banking
What is the limit to what financial subsidiaries of a bank can do - ANS NO Insurance
Underwriting; Aggregate total assets of financial subsidiaries of a bank CANNOT exceed the
lesser of $50B or 45% of Bank's total assets.
Who do affiliate transaction rules apply to - ANS ONLY from the bank to the affiliate (Not the
other way around); financial subsidiaries of a bank as well.
Who do affiliate transaction rules NOT apply to? - ANS A bank's operating subsidiaries, or A
sister bank under the same holding company (80% common ownership).
What are Covered Transactions under Section 23A of the Federal Reserve Act? -
ANS Transactions (like loans, purchases of assets/securities, or guarantees) that expose a
bank to credit risk from its affiliates.
What is the Section 23B Rule of the Federal Reserve Act? - ANS Bank must deal with an
affiliate at arm's length and on market terms: (terms must be at least as favorable to the bank as
comparable transactions with nonaffiliated companies.)
What are the most important rules of 23A of the Federal Reserve Act? - ANS Banks total
covered transactions with 1 affiliate cannot exceed 10% of bank's capital; Banks total covered
transactions with all afilliates cannot exceed 20%; credit transactions must be fully secured with
high quality collateral; Bank CANNOT buy low-quality assets from affiliates.
What is the Market Quotation Exemption? - ANS If a bank buys something from its affiliate at
the real market price — same price anyone else could buy it for — it's not treated as a risky
insider deal under Section 23A.
2 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
QUESTIONS AND ANSWERS GRADED A+
2025/2026
What created a central bank of the United States? - ANS Federal Reserve Act of 1913
What is the Central Bank in the U.S. - ANS The Federal Reserve
Why does Bank Regulation Exist? - ANS To protect customer deposits; payments of goods and
services; fairness; and protection from financial crime.
Can only call yourself a bank if: - ANS you can withdraw on demand
If creating an agency that is a regulator you want to give it what? - ANS 1. Rulemaking; 2.
Supervisory; 3. Enforcement
What did the National Currency Act of 1863 & National Bank Act of 1864 do? - ANS Creates
Uniform National Currency; Creates OCC as chartering authority; Created the Dual Banking
System
What is the Dual Banking System? - ANS Bank has a choice of either a state charter or OCC
charter
What Act discusses the affiliate rules? - ANS Federal Reserve Act
1 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
, Financial holding companies can create subsidiaries that do - ANS Securities underwriting;
Securities broker-dealer; Insurance agency; Insurance underwriting; Merchant banking
Financial subsidiaries of a bank can do - ANS Securities underwriting; Securities broker-
dealer; Insurance Agency; Merchant Banking
What is the limit to what financial subsidiaries of a bank can do - ANS NO Insurance
Underwriting; Aggregate total assets of financial subsidiaries of a bank CANNOT exceed the
lesser of $50B or 45% of Bank's total assets.
Who do affiliate transaction rules apply to - ANS ONLY from the bank to the affiliate (Not the
other way around); financial subsidiaries of a bank as well.
Who do affiliate transaction rules NOT apply to? - ANS A bank's operating subsidiaries, or A
sister bank under the same holding company (80% common ownership).
What are Covered Transactions under Section 23A of the Federal Reserve Act? -
ANS Transactions (like loans, purchases of assets/securities, or guarantees) that expose a
bank to credit risk from its affiliates.
What is the Section 23B Rule of the Federal Reserve Act? - ANS Bank must deal with an
affiliate at arm's length and on market terms: (terms must be at least as favorable to the bank as
comparable transactions with nonaffiliated companies.)
What are the most important rules of 23A of the Federal Reserve Act? - ANS Banks total
covered transactions with 1 affiliate cannot exceed 10% of bank's capital; Banks total covered
transactions with all afilliates cannot exceed 20%; credit transactions must be fully secured with
high quality collateral; Bank CANNOT buy low-quality assets from affiliates.
What is the Market Quotation Exemption? - ANS If a bank buys something from its affiliate at
the real market price — same price anyone else could buy it for — it's not treated as a risky
insider deal under Section 23A.
2 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
