UCE (Economic Finance) EXAM 4
PRACTICE QUESTIONS WITH VERIFIED
SOLUTIONS RATED A.
Which of the following should be included in an effective risk
management process for vendor management?
I. Plans that outline the bank's strategy, identify inherent risks, and detail
how the bank selects, assesses, and oversees third parties
II. Contingency plans for terminating the relationship in an effective
manner
III. Ongoing monitoring of third party activities and performance
IV. Proper due diligence in selecting a third party
a) I and II only
b) II only
c) I, III, and IV only
d) I, II, III, and IV
d - All of the above. See OCC Bulletin 2013-29: "Third-Party Relationships,"
pg. 1
A reservist with the National Guard received military service orders dated
6/24/2013 with a reporting date to active service of 8/12/2013. When
applying the appropriate interest rate reduction, which date should the
bank use?
a) The date of the military orders
b) The date 30 days after the reservist received the orders
c) The date the reservist notifies the bank
d) The date the reservist enters active duty
a - See 50 USC Appendix §516(a)
,True/False:
A bank's total outstanding loans and extensions of credit to one borrower
may not ever exceed 15 percent of the bank's capital and surplus.
False - See 12 CFR 32.3
The investment officer at First National Bank would like to add a municipal
bond to the bank's investment portfolio. She believes that the bond is
investment grade due to its Moody rating of Baa1. Which of the following
OCC Bulletins should she consult for additional due diligence
requirements?
a) OCC Bulletin 2014-36
b) OCC Bulletin 2011-19
c) OCC Bulletin 2012-24
d) OCC Bulletin 2012-18
d - The depth of the due diligence should be a function of the security's credit
quality, the complexity of the structure, and the size of the investment. See
OCC Bulletin 2012-18: "Alternatives to the Use of External Credit Ratings"
A bank's customer identification program must contain account-opening
procedures detailing the identifying information to be obtained from each
customer. At a minimum, which of the following information must the
bank obtain before opening an account for US persons?
I. Customer name
II. Date of birth, for an individual
III. Employer, for an individual
IV. Address
a) I and II only
b) II only
c) I, II, and IV only
d) I, II, III, and IV
c - I, II, and IV only. In addition to customer name, date of birth, and address,
the bank should also obtain the identification number for the individual or
corporation. See 31 CFR 1020.220 for further guidance on CIP as there may
be exemptions.
,When an individual loan is considered impaired, management must
measure the extent of the impairment. What measurement method(s) may
the bank base the impairment on?
a) The present value of the loan's future cash flows
b) The observed market value of the loan
c) If a collateral dependent loan, the collateral value less the costs to sell
d) All of the above
d - All of the above are appropriate. ASC 310-10-35-22 (formerly FAS 114)
allows the use of (a); however, additionally allows (b) and (c) as "practical
expedients." See Allowance for Loan and Lease Losses Handbook, pg 6
Which of the following assets have potential weaknesses that may, if not
checked or corrected, weaken the asset or inadequately protect the
institution's position at some future date?
a) Special Mention
b) Substandard
c) Doubtful
d) Loss
a - Special Mention. Special mention assets are not adversely classified but
pose elevated risk. See Rating Credit Risk Handbook, pg 16
Which of the following is an indicator of low risk when quantifying
liquidity risk?
I. Funding sources are abundant and provide cost advantage
II. Liquidity needs increasing, but sources of market alternatives are
declining
III. Parent company support is strong
IV. Funding is widely diversified, with little or no reliance on wholesale
funding
a) I and II only
b) II only
c) I, III, and IV only
d) I, II, III, and IV
, c - I, III, and IV only. See Liquidity RAS of Community Bank Supervision
Handbook, pg 143
Use the following call report information (in $000's) for CY-0:
CY-0 NI: $2,000
Commons Stock: $750
CY-1 RE: $2,150
Surplus: $800
CY-2 RE: $975
Undivided Profits:$9,750
Assuming this institution has never declared dividends, what is the
maximum current-year dividend the bank can declare without receiving
prior approval from the OCC?
a) $1,550
b) $2,000
c) $5,125
d) $9,750
c - $2,000+$2,150+$975 = $5,125. Per 12 USC 60, a national bank must
obtain prior approval from the OCC to pay dividends that would exceed its
net profits for the current year combined with retained net profits of the prior
two years. See Capital Accounts and Dividends Handbook, pg. 11
The OCC can initiate a variety of informal and formal actions against
national banks. Which of the following actions are public documents?
a) Board Resolutions
b) Formal Agreements
c) Commitment Letters
d) Memoranda of Understanding
b - Formal Agreements. While Formal Agreements are issued pursuant to the
OCC's Cease and Desist Order authority, they are considered less severe than
C&Ds. See Bank Enforcement Actions document,
http://el.occ/publications/publications-by-type/internal/enforcement-action-
guidance.html
PRACTICE QUESTIONS WITH VERIFIED
SOLUTIONS RATED A.
Which of the following should be included in an effective risk
management process for vendor management?
I. Plans that outline the bank's strategy, identify inherent risks, and detail
how the bank selects, assesses, and oversees third parties
II. Contingency plans for terminating the relationship in an effective
manner
III. Ongoing monitoring of third party activities and performance
IV. Proper due diligence in selecting a third party
a) I and II only
b) II only
c) I, III, and IV only
d) I, II, III, and IV
d - All of the above. See OCC Bulletin 2013-29: "Third-Party Relationships,"
pg. 1
A reservist with the National Guard received military service orders dated
6/24/2013 with a reporting date to active service of 8/12/2013. When
applying the appropriate interest rate reduction, which date should the
bank use?
a) The date of the military orders
b) The date 30 days after the reservist received the orders
c) The date the reservist notifies the bank
d) The date the reservist enters active duty
a - See 50 USC Appendix §516(a)
,True/False:
A bank's total outstanding loans and extensions of credit to one borrower
may not ever exceed 15 percent of the bank's capital and surplus.
False - See 12 CFR 32.3
The investment officer at First National Bank would like to add a municipal
bond to the bank's investment portfolio. She believes that the bond is
investment grade due to its Moody rating of Baa1. Which of the following
OCC Bulletins should she consult for additional due diligence
requirements?
a) OCC Bulletin 2014-36
b) OCC Bulletin 2011-19
c) OCC Bulletin 2012-24
d) OCC Bulletin 2012-18
d - The depth of the due diligence should be a function of the security's credit
quality, the complexity of the structure, and the size of the investment. See
OCC Bulletin 2012-18: "Alternatives to the Use of External Credit Ratings"
A bank's customer identification program must contain account-opening
procedures detailing the identifying information to be obtained from each
customer. At a minimum, which of the following information must the
bank obtain before opening an account for US persons?
I. Customer name
II. Date of birth, for an individual
III. Employer, for an individual
IV. Address
a) I and II only
b) II only
c) I, II, and IV only
d) I, II, III, and IV
c - I, II, and IV only. In addition to customer name, date of birth, and address,
the bank should also obtain the identification number for the individual or
corporation. See 31 CFR 1020.220 for further guidance on CIP as there may
be exemptions.
,When an individual loan is considered impaired, management must
measure the extent of the impairment. What measurement method(s) may
the bank base the impairment on?
a) The present value of the loan's future cash flows
b) The observed market value of the loan
c) If a collateral dependent loan, the collateral value less the costs to sell
d) All of the above
d - All of the above are appropriate. ASC 310-10-35-22 (formerly FAS 114)
allows the use of (a); however, additionally allows (b) and (c) as "practical
expedients." See Allowance for Loan and Lease Losses Handbook, pg 6
Which of the following assets have potential weaknesses that may, if not
checked or corrected, weaken the asset or inadequately protect the
institution's position at some future date?
a) Special Mention
b) Substandard
c) Doubtful
d) Loss
a - Special Mention. Special mention assets are not adversely classified but
pose elevated risk. See Rating Credit Risk Handbook, pg 16
Which of the following is an indicator of low risk when quantifying
liquidity risk?
I. Funding sources are abundant and provide cost advantage
II. Liquidity needs increasing, but sources of market alternatives are
declining
III. Parent company support is strong
IV. Funding is widely diversified, with little or no reliance on wholesale
funding
a) I and II only
b) II only
c) I, III, and IV only
d) I, II, III, and IV
, c - I, III, and IV only. See Liquidity RAS of Community Bank Supervision
Handbook, pg 143
Use the following call report information (in $000's) for CY-0:
CY-0 NI: $2,000
Commons Stock: $750
CY-1 RE: $2,150
Surplus: $800
CY-2 RE: $975
Undivided Profits:$9,750
Assuming this institution has never declared dividends, what is the
maximum current-year dividend the bank can declare without receiving
prior approval from the OCC?
a) $1,550
b) $2,000
c) $5,125
d) $9,750
c - $2,000+$2,150+$975 = $5,125. Per 12 USC 60, a national bank must
obtain prior approval from the OCC to pay dividends that would exceed its
net profits for the current year combined with retained net profits of the prior
two years. See Capital Accounts and Dividends Handbook, pg. 11
The OCC can initiate a variety of informal and formal actions against
national banks. Which of the following actions are public documents?
a) Board Resolutions
b) Formal Agreements
c) Commitment Letters
d) Memoranda of Understanding
b - Formal Agreements. While Formal Agreements are issued pursuant to the
OCC's Cease and Desist Order authority, they are considered less severe than
C&Ds. See Bank Enforcement Actions document,
http://el.occ/publications/publications-by-type/internal/enforcement-action-
guidance.html
