UCE (Economic Finance) EXAM 1
QUESTIONS WITH VERIFIED SOLUTIONS
RATED A.
A bank has a lending relationship with a borrower. Total outstanding
equals $2,000M. The bank's LLL is $2,500M. The board approves a
$1,000M commercial construction mortgage to the borrower. To date only
$250M has been funded. Does the relationship constitute a LLL violations?
A) Yes.
B) No.
B-No. Because the funds have not yet been drawn in amount, that when
combined with other loans, exceeds the LLL. This is considered a "non-
qualifying commitment", the violation occurs once the funds are advanced (12
CFR 32.2 --verified with Jane Principe while at Luzerne NB).
Ned, Ed and Eddie form a general partnership. The partnership borrows
$500M from OCC Bank to fund start-up costs and provide WC. OCC Bank
has a LLL of $750M. Individually, the partners have the following lending
relationships with OCC bank:
Ned: $125M Residential Mtg; $25M car loan; $75M tuition loan.
Ed: $275M Residential Mtg.
Eddie: $150M Residential Mtg; $10M car loan; $100M fully drawn
personal line of credit secured by a segregated deposit account.
Does the lending relationship between OCC Bank and the partnership
create any LLL violations?
A) No
B) Yes- All three partners lending relationships violate the LLL.
C) Yes- Ned's & Ed's borrowings violate the LLL.
,D) Yes- Ed's and Eddie's borrowing violate the LLL.
E) Yes- Only Ed's borrowing violate the LLL.
E-Only Ed's. 12 CFR 32.5(e) states that loans to general partnerships are
combinable with the loans of the individual partners. In this scenario Ed's
lending relationship, when combined with the $500M partnership loan,
exceeds the $750M LLL by $25M. Eddie's borrowing do not cause a violation
as the $100M line of credit is exempt from the calculation due to the nature
of the collateral.
What board-level committee(s) are required by regulation for all national
banks exercising trust power?
A) Trust Audit Committee
B) Trust Investment Committee
C) Trust Administrative Committee
D) A and C
E) None of the above.
A- Trust Audit Committee (12 CFR 9.9).
Fiduciary assets are permitted to be commingled with bank assets?
A) True
B) False
B (12 CFR 9.13(b)).
What types of reviews are not required per 12 CFR 9?
A) Review of all accounts, at least annually.
B) Review of all fiduciary accounts, at least annually.
C) Pre-acceptance review of all new accounts.
D) Initial post-acceptance review.
E) All of these reviews are required.
A (12 CFR 9.6).
,What policies are not required per 12 CFR 9?
A) Brokerage placement
B) Selection and retention of legal counsel
C) Inside information
D) Investment manager selection
E) No policies are formally required per 12 CFR 9.
D (12 CFR 9.5)
12 CFR 9 requires that an audit be performed at least every __________?
A) calendar year
B) 15 months
C) 18 months
D) 3 years if audit receives a "1" rating from the OCC
E) There is no timing requirement
A (12 CFR 9.9(a))
Can a director serve as member of both the Trust Audit and Trust
Committees?
A) No
B) Yes, always
C) Yes, with OCC approval
D) Yes, as long a majority of the audit committee doesn't have conflicting
duties.
E) Yes, if the bank has less than $100MM in trust assets.
D (12 CFR 9.9(c))
OCC Bank has a small trust department of only three employees. Due to
limited space in the bank's main vault, trust assets are maintained in a
locked fire-proof cabinet in the trust department. Trust Officer Gallagher
maintains the key. Does this arrangement comply with 12 CFR 9?
, A) Yes
B) No
B-No. (12 CFR 9.13)
Trust Officer Gallagher needs to borrow money to buy a new bass boat.
He can't borrow from the bank as it would create a Reg-O violation.
Instead, he finds out what current loan terms the bank is currently offering
for boat loans, and borrows the money from a trust he administers. The
rate, terms and collateral are consistent with what he would have paid if
he had borrowed from the bank. Is this permissible?
A) Yes
B) No
B-No. (12 CFR 9.12(b)(2))
OCC Bank is named executor of estate. Consistent with its fiduciary
responsibilities, OCC Bank instructs Trust Officer Gallagher to collect and
liquidate all estate assets for the payment of bills and taxes. Included in
the estate is a collection of antique fishing lures. All assets are valued and
sold at a public auction. Trust Officer Gallagher, through bidding,
purchases the fishing lure collection at auction. Is this permissible?
A) Yes
B) No
B-No. (12 CFR 9.12(b)(1)) Though the lures were purchased at public auction,
the executor can exercise control over the timing and advertisement of the
estate auction.
OCC Bank is trustee of the Jones Trust and the Smith Trust. As trustee, OCC
bank has sole investment authority over both accounts. Management
needs to begin liquidating assets from the Smith trust as required
distributions are scheduled over the next 6-12 months. Trust Officer
Gallagher decides to sell AT&T stock from this account to the Jones
account, thus avoiding brokers fees. The shares were traded at the current
QUESTIONS WITH VERIFIED SOLUTIONS
RATED A.
A bank has a lending relationship with a borrower. Total outstanding
equals $2,000M. The bank's LLL is $2,500M. The board approves a
$1,000M commercial construction mortgage to the borrower. To date only
$250M has been funded. Does the relationship constitute a LLL violations?
A) Yes.
B) No.
B-No. Because the funds have not yet been drawn in amount, that when
combined with other loans, exceeds the LLL. This is considered a "non-
qualifying commitment", the violation occurs once the funds are advanced (12
CFR 32.2 --verified with Jane Principe while at Luzerne NB).
Ned, Ed and Eddie form a general partnership. The partnership borrows
$500M from OCC Bank to fund start-up costs and provide WC. OCC Bank
has a LLL of $750M. Individually, the partners have the following lending
relationships with OCC bank:
Ned: $125M Residential Mtg; $25M car loan; $75M tuition loan.
Ed: $275M Residential Mtg.
Eddie: $150M Residential Mtg; $10M car loan; $100M fully drawn
personal line of credit secured by a segregated deposit account.
Does the lending relationship between OCC Bank and the partnership
create any LLL violations?
A) No
B) Yes- All three partners lending relationships violate the LLL.
C) Yes- Ned's & Ed's borrowings violate the LLL.
,D) Yes- Ed's and Eddie's borrowing violate the LLL.
E) Yes- Only Ed's borrowing violate the LLL.
E-Only Ed's. 12 CFR 32.5(e) states that loans to general partnerships are
combinable with the loans of the individual partners. In this scenario Ed's
lending relationship, when combined with the $500M partnership loan,
exceeds the $750M LLL by $25M. Eddie's borrowing do not cause a violation
as the $100M line of credit is exempt from the calculation due to the nature
of the collateral.
What board-level committee(s) are required by regulation for all national
banks exercising trust power?
A) Trust Audit Committee
B) Trust Investment Committee
C) Trust Administrative Committee
D) A and C
E) None of the above.
A- Trust Audit Committee (12 CFR 9.9).
Fiduciary assets are permitted to be commingled with bank assets?
A) True
B) False
B (12 CFR 9.13(b)).
What types of reviews are not required per 12 CFR 9?
A) Review of all accounts, at least annually.
B) Review of all fiduciary accounts, at least annually.
C) Pre-acceptance review of all new accounts.
D) Initial post-acceptance review.
E) All of these reviews are required.
A (12 CFR 9.6).
,What policies are not required per 12 CFR 9?
A) Brokerage placement
B) Selection and retention of legal counsel
C) Inside information
D) Investment manager selection
E) No policies are formally required per 12 CFR 9.
D (12 CFR 9.5)
12 CFR 9 requires that an audit be performed at least every __________?
A) calendar year
B) 15 months
C) 18 months
D) 3 years if audit receives a "1" rating from the OCC
E) There is no timing requirement
A (12 CFR 9.9(a))
Can a director serve as member of both the Trust Audit and Trust
Committees?
A) No
B) Yes, always
C) Yes, with OCC approval
D) Yes, as long a majority of the audit committee doesn't have conflicting
duties.
E) Yes, if the bank has less than $100MM in trust assets.
D (12 CFR 9.9(c))
OCC Bank has a small trust department of only three employees. Due to
limited space in the bank's main vault, trust assets are maintained in a
locked fire-proof cabinet in the trust department. Trust Officer Gallagher
maintains the key. Does this arrangement comply with 12 CFR 9?
, A) Yes
B) No
B-No. (12 CFR 9.13)
Trust Officer Gallagher needs to borrow money to buy a new bass boat.
He can't borrow from the bank as it would create a Reg-O violation.
Instead, he finds out what current loan terms the bank is currently offering
for boat loans, and borrows the money from a trust he administers. The
rate, terms and collateral are consistent with what he would have paid if
he had borrowed from the bank. Is this permissible?
A) Yes
B) No
B-No. (12 CFR 9.12(b)(2))
OCC Bank is named executor of estate. Consistent with its fiduciary
responsibilities, OCC Bank instructs Trust Officer Gallagher to collect and
liquidate all estate assets for the payment of bills and taxes. Included in
the estate is a collection of antique fishing lures. All assets are valued and
sold at a public auction. Trust Officer Gallagher, through bidding,
purchases the fishing lure collection at auction. Is this permissible?
A) Yes
B) No
B-No. (12 CFR 9.12(b)(1)) Though the lures were purchased at public auction,
the executor can exercise control over the timing and advertisement of the
estate auction.
OCC Bank is trustee of the Jones Trust and the Smith Trust. As trustee, OCC
bank has sole investment authority over both accounts. Management
needs to begin liquidating assets from the Smith trust as required
distributions are scheduled over the next 6-12 months. Trust Officer
Gallagher decides to sell AT&T stock from this account to the Jones
account, thus avoiding brokers fees. The shares were traded at the current
