Reading...
Play button
Play button
Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
35 Cards in this Set
- Front
- Back
|
Which of the items below are functions of capital?
a. Allows banks to grow assets significantly b. Absorbs losses c. Promotes public confidence d. Provides protection to depositors and the FDIC insurance funds e. All of the above |
Answer: b., c., and d.
|
|
|
Part ___ of the FDIC Rules and Regulations implements Section ____ of the Federal Deposit Insurance Act by establishing a framework for taking prompt supervisory actions against insured state nonmember banks that are not adequately capitalized.
a. Part 325, Section 39 b. Part 325, Section 37 c. Part 325, Section 36 d. Part 323, Section 38 e. Part 325, Section 38 |
d. Part 323, Section 38
|
|
|
The FDIC has issued several Financial Institution Letters (FILs) that provide additional capital guidance. These FILs primarily deal with capital effects from (choose the best answer):
a. Risk-based capital treatment of private label CMOs b. Recourse, direct credit substitutes, and residual interests in asset securitizations c. Residual interests in asset securitizations only d. Asset-backed and mortgage-backed securities |
b. Recourse, direct credit substitutes, and residual interests in asset securitizations
|
|
|
A bank’s “Leverage Ratio” includes the following components of capital (choose the best answer):
a. Tier 1 Risk-Based Capital only since it levers the risk of various asset types b. Tier II Capital only c. Tier 1 Capital only d. Total Capital only |
c. Tier 1 Capital only
|
|
|
The three primary components of Core Capital are (choose the best answer)
a. Common stockholders’ equity, cumulative perpetual preferred stock, and minority interests in consolidated subsidiaries b. Common stockholders’ equity, minority interests in consolidated subsidiaries, and intangible assets to the extent allowed by Part 325 c. Common stockholders’ equity, noncumulative perpetual preferred stock, and deferred tax assets d. Common stockholders’ equity, minority interests in consolidated subsidiaries, and noncumulative perpetual preferred stock |
d. Common stockholders’ equity, minority interests in consolidated subsidiaries, and noncumulative perpetual preferred stock
|
|
|
Common stockholders’ equity consists of (choose the best answer)
a. Common stock, related surplus, and undivided profits b. Common stock, preferred stock, related surplus, and undivided profits c. Common stock, related surplus, undivided profits, less net unrealized losses on available-for-sale securities d. Common stock, related surplus, undivided profits, reserves that represent a segregation of undivided profits, less net unrealized losses on available-for-sale securities e. Common stock, related surplus, undivided profits, reserves that represent a segregation of undivided profits, foreign currency translation adjustments, less net unrealized losses on available-for-sale securities |
e. Common stock, related surplus, undivided profits, reserves that represent a segregation of undivided profits, foreign currency translation adjustments, less net unrealized losses on available-for-sale securities
|
|
|
Noncumulative perpetual preferred stock includes (choose all that apply)
a. Stock where the issuer can waive dividend payments and they do not accumulate to future periods b. Stock where the waiving of dividend payments does not represent a contingent claim on the issuer c. Stock where the issuer can waive dividend payments and the dividend is periodically reset based upon the issuer’s credit standing and dividends are not cumulative d. Stock where the issuer can waive dividend payments and the dividend is periodically reset based upon the going market rate for the specific issuer’s stock and the dividends are not cumulative |
a. and b.
|
|
|
Generally, deferred tax assets that are dependent upon future taxable income are limited, for capital inclusion, to the lesser of (choose the best answer):
a. Those that can be realized within the next two years or 50% of Tier 1 Capital b. Those that can be realized within the next year or 25% of Tier 1 Capital c. Those that can be realized within the next year or 10% of Tier 1 Capital d. Those that can be realized within the fiscal year or 10% of Tier 1 Capital |
c. Those that can be realized within the next year or 10% of Tier 1 Capital
|
|
|
The Statement of Policy on Risk-Based Capital can be found in (choose all that apply):
a. Appendix A, Part 325 b. Appendix B, Part 325 c. Appendix C, Part 325 d. Appendix D, Part 325 e. FDIC Rules and Regulations – Statements of Policy |
a. Appendix A, Part 325
|
|
|
For Tier II Capital purposes, a bank can include its Allowance for Loan and Lease Losses up to (choose the best answer)
a. 1.00% of total risk-weighted assets b. 1.25% of total risk-weighted assets c. 1.25% of gross risk-weighted assets d. 1.15% of gross risk-weighted assets e. There is no limit for 1- and 2-rated banks |
c. 1.25% of gross risk-weighted assets
|
|
|
For Tier II Capital purposes, cumulative perpetual preferred stock and long-term preferred stock is includable. Long-term preferred stock is defined as (choose all that apply):
a. Preferred stock with an original weighted average maturity of >15 years b. Preferred stock with an original weighted average maturity of >20 years c. Preferred stock with an original weighted average maturity of >10 years d. Must be discounted in accordance with GAAP when remaining maturity falls below 5 years e. Must be discounted in accordance with Call Report Instructions when remaining maturity falls below 5 years f. Must be discounted in accordance with GAAP when remaining maturity falls below 3 years g. Must be discounted in accordance with Call Report Instructions when remaining maturity falls below 3 years |
b. and e.
|
|
|
The maximum amount of Tier II capital that may be recognized for risk-based capital purposes is limited to ____ % of Tier I Capital, and the combined amount of term subordinated debt and intermediate-term preferred stock that may be treated as Tier II Capital is limited to ____% of Tier I Capital (fill in the blanks):
a. 50 and 50 b. 25 and 50 c. 100 and 50 d. 100 and 100 e. 100 and 25 |
c. 100 and 50
|
|
|
Tier III Capital is limited to use in situations where the market risk-based capital rules apply. The rules apply to state nonmember banks whose trading activity (on a worldwide basis) equals ____ of total assets or greater than or equal to _____ dollars (fill in the blanks):
a. 25% and $1 Billion b. 10% and $1 Billion c. 15% and $1 Billion d. 10% and $10 Billion e. 15% and $10 Billion f. 20% and $1 Billion |
b. 10% and $1 Billion
|
|
|
A bank subject to the market risk rules must (choose all that apply)
a. Use a value-at risk model to estimate the maximum amount of covered position exposure b. Have a risk control unit that reports directly to senior management c. Have an internal risk model integrated into daily activities for backtesting and stress purposes d. a and b only e. a, b, and c |
e. a, b, and c
|
|
|
When calculating capital for a bank under examination, the amount of loans and leases classified Loss will be deducted from (choose the best answer):
a. Tier I Capital b. Tier II Capital c. Tier III Capital d. Total Capital |
b. Tier II Capital
|
|
|
When considering loans adversely classified Doubtful, for examination purposes, these loans are (choose the best answer):
a. Not deducted from capital but are considered in ALLL adequacy b. 50% of the dollar volume of such loans is deducted from Tier I capital c. Not deducted from Tier I Capital, but 50% of such loans is deducted from Tier II Capital d. Not deducted for leverage capital purposes, but are deducted for risk-based capital purposes |
a. Not deducted from capital but are considered in ALLL adequacy
|
|
|
An adjustment to capital for an inadequate ALLL is required to be made when (choose one answer)
a. Loan losses exceed 10% of the ALLL b. The required provision expense exceeds 5% of current net income c. The adjustment would be deemed significant d. The adjustment exceeds 1% of total loan volume |
c. The adjustment would be deemed significant
|
|
|
ORE reserves, much like the ALLL, whether general or specific reserves are (choose the best answer):
a. Recognized as a component of Tier I capital b. Recognized as a component of Tier II Capital c. Not recognized as a leverage capital component, but recognized for risk-based capital purposes d. Recognized for leverage capital purposes, but not recognized for risk-based capital purposes e. Not recognized for either leverage or risk-based capital requirements |
e. Not recognized for either leverage or risk-based capital requirements
|
|
|
The minimum Leverage Capital level for a financial institution is (choose all that apply)
a. 2% if the bank is rated “1” b. 3% if the bank is rated “1” and not anticipating significant growth c. 4% if the bank is rated “1” and not anticipating significant growth d. 4% if the bank is rated “2” and not anticipating significant growth e. Any level the FDIC deems necessary based on a bank’s risk profile |
b., d., and e.
|
|
|
A bank that has less than the minimum leverage requirement is deemed to be in ______ of Part 325 and engaged in an unsafe or unsound practice pursuant to _______ of the FDI Act, unless the bank has entered into and is in compliance with a written plan approved by the FDIC (fill in the blanks):
a. Contravention and Sections 8(e) and/or 8(f) b. Contravention and Sections 8(b) and/or 8(c) c. Violation and Sections 8(e) and/or 8(i) d. Violation and Sections 8(b) and/or 8(c) e. Violation and Sections 8(j) and/or 8(i) |
d. Violation and Sections 8(b) and/or 8(c)
|
|
|
If a bank has a Leverage Ratio of less than ____, it is deemed to be operating in an unsafe and unsound condition pursuant to ______ of the FDI Act (fill in the blanks):
a. 2% and Section 8(a) b. 2% and Sections 8(b) and/or 8(c) c. 3% and Section 8(a) d. 3% and Sections 8(b) and/or 8(c) |
a. 2% and Section 8(a)
|
|
|
The minimum risk-based capital requirement for a bank is (choose the correct answer)
a. Total risk-based capital and Tier I risk-based capital of 10% and 5%, respectively b. Total risk-based capital and Tier I risk-based capital of 6% and 4%, respectively c. Total risk-based capital and Tier I risk-based capital of 8% and 5%, respectively d. Total risk-based capital and Tier I risk-based capital of 8% and 4%, respectively e. Total risk-based capital and Tier I risk-based capital of 6% and 3%, respectively |
d. Total risk-based capital and Tier I risk-based capital of 8% and 4%, respectively
|
|
|
Generally, to qualify as an “Adequately Capitalized” institution under PCA guidelines, a bank’s Leverage, Tier 1 Risk-Based, and Total Risk-Based Capital Ratios must be (choose all that apply):
a. > 5%, > 6%, and > 10% b. > 4%, > 6%, and > 8% c. > 4%, > 4%, and > 8% d. > 3%, > 4%, and > 6%, if composite rating is “1” and no significant growth e. > 3%, > 6%, and > 8%, if composite rating is “1” and no significant growth f. > 3%, > 4%, and > 8%, if composite rating is “1” and no significant growth |
b. > 4%, > 6%, and > 8%
c. > 4%, > 4%, and > 8%, and e. > 3%, > 6%, and > 8%, if composite rating is “1” and no significant growth f. > 3%, > 4%, and > 8%, if composite rating is “1” and no significant growth |
|
|
If an institution is deemed to be “Critically Undercapitalized” if it has (choose the correct answer):
a. Tier I Capital below 2% b. Tangible equity capital < 2% c. Total equity capital < 2% d. Tier I Capital < 3% |
b. Tangible equity capital < 2%
|
|
|
Generally, a bank’s assets are divided into four broad risk categories for risk-based purposes; however, other risk categories to risk weight derivatives and other off-balance sheet items exist. The Manual lists the following risk-weighted categories (choose the best answer):
a. 0%, 10%, 20%, 50%, and 100% b. 0%, 20%, 50%, 100%, and 200% c. 0%, 20%, 50%, 100%, and 150% d. 0%, 20%, 50%, 100%, and 300% |
b. 0%, 20%, 50%, 100%, and 200%
|
|
|
The risk-weighted process for off-balance sheet items is a two-step process. First, the ___________ is determined by multiplying the face value or notional amount of the off-balance sheet item by a _________. Second, that amount is assigned to an appropriate ______ (choose the best answer).
a. risk-weighted amount, risk factor, risk category b. credit equivalent amount, risk factor, risk category c. credit equivalent amount, credit conversion factor, risk category d. credit equivalent amount, risk-weighted factor, risk-weighted category |
c. credit equivalent amount, credit conversion factor, risk category
|
|
|
Under PCA regulations, a bank must file a written capital restoration plan within ___ days of the date that the bank receives notice or is deemed to have notice that the bank is _______, _______, or _______, unless the FDIC notifies the bank in writing that the plan is to be filed within a different period (fill in the blanks).
a. 30, adequately capitalized, undercapitalized, significantly undercapitalized b. 30, undercapitalized, significantly undercapitalized, critically undercapitalized c. 45, adequately capitalized, undercapitalized, significantly undercapitalized d. 45, undercapitalized, significantly undercapitalized, critically undercapitalized e. 60, undercapitalized, significantly undercapitalized, critically undercapitalized |
d. 45, undercapitalized, significantly undercapitalized, critically undercapitalized
|
|
|
PCA requires an institution with a Tier I capital to _____ ratio of less than ____ must enter and be in compliance with a written agreement with the FDIC to increase its Tier I Leverage Ratio to a level the FDIC deems appropriate (fill in the blanks).
a. Total assets, 2% b. Average assets, 2% c. Adjusted average assets, 2% d. Total assets, 3% e. Average assets, 3% f. Adjusted average assets, 3% |
a. Total assets, 2%
|
|
|
The three more common avenues to increase capital in a bank are (choose the best answer)
a. Raise deposit rates, holding company injection, increase earnings retention b. Increase earnings retention, raise loan rates, sell additional stock c. Increase earnings retention, sell additional stock, reduce asset growth d. Increase earnings retention, holding company injection, reduce asset growth |
c. Increase earnings retention, sell additional stock, reduce asset growth
|
|
|
Potential claims on a bank’s assets dependent on some future event or circumstance are described as (choose the best answer):
a. Accounts payable b. Category I contingent liabilities c. Category I and Category II contingent liabilities d. Category II contingent liabilities e. Accrued liabilities |
c. Category I and Category II contingent liabilities
|
|
|
An unfunded loan commitment and deficiencies related to trust department administration are examples of _____ and ______, respectively. (choose the best answer):
a. Category I and fiduciary contingencies b. Category I and Category II contingencies c. Category II contingencies and fiduciary contingencies d. Loan and fiduciary contingencies |
b. Category I and Category II contingencies
|
|
|
______ refers to contingent liabilities in which there is substantial and material risk of loss to a bank (fill in the blank).
a. Dead loss b. Estimated loss c. Probable loss d. Potential loss |
d. Potential loss
|
|
|
For additional information on contingencies, examiners can refer to ________, under Generally Accepted Accounting Principles (GAAP) (fill in the blank)
a. FAS #5 b. FAS #91 c. FAS #114 d. FAS #80 e. FAS #13 |
a. FAS #5
|
|
|
The capital adequacy of an institution is rated based upon, but not limited to, an assessment of (choose the most correct answer)
a. Capital level, management’s abilities, level of problem assets, off-balance sheet risk, growth plans b. Level and quality of capital, volume of problem assets, management’s abilities, balance sheet composition, quality and strength of earnings, growth plans c. Nature, trend, and volume of problem assets, balance sheet composition, off-balance sheet activities, quality and strength of earnings, prospects and plans for growth d. Quality of capital, level of problem assets, growth plans, quality and strength of earnings, off-balance sheet risk |
b. Level and quality of capital, volume of problem assets, management’s abilities, balance sheet composition, quality and strength of earnings, growth plans
|
|
|
Match capital ratings 1 - 5 with their respective definitions:
a. Deficient level of capital, viability may be threatened, outside assistance may be necessary b. Satisfactory capital level relative to risk profile c. Critically deficient capital, viability is threatened, immediate assistance is necessary d. Strong capital relative to risk profile e. Less than satisfactory capital, capital needs to be improved, even if levels exceed regulatory minimums |
(4) a. Deficient level of capital, viability may be threatened, outside assistance may be necessary
(2) b. Satisfactory capital level relative to risk profile (5) c. Critically deficient capital, viability is threatened, immediate assistance is necessary (1) d. Strong capital relative to risk profile (3) e. Less than satisfactory capital, capital needs to be improved, even if levels exceed regulatory minimums |
