Banking Exam Awareness 2 — Questions and Answers
Question 1: Which U.S. federal agency is primarily responsible for insuring deposits at commercial banks?
- Federal Reserve
- FDIC (Correct answer)
- OCC
- CFPB
Correct answer: FDIC
The Federal Deposit Insurance Corporation (FDIC) insures deposits up to $250,000 per depositor, per insured bank.
Question 2: What is the primary purpose of the Bank Secrecy Act (BSA)?
- Protect consumer privacy
- Prevent money laundering and financial crimes (Correct answer)
- Regulate interest rates
- Set capital reserve requirements
Correct answer: Prevent money laundering and financial crimes
The BSA requires financial institutions to assist government agencies in detecting and preventing money laundering.
Question 3: The Community Reinvestment Act (CRA) was designed to prevent which practice?
- Insider trading
- Redlining (Correct answer)
- Price fixing
- Tax evasion
Correct answer: Redlining
The CRA was enacted to prohibit redlining, where banks refused to lend in minority or low-income neighborhoods.
Question 4: What is 'Know Your Customer' (KYC) in banking?
- A marketing strategy to improve customer satisfaction
- A process to verify the identity and assess risks of customers (Correct answer)
- A loan underwriting technique
- A method for calculating credit scores
Correct answer: A process to verify the identity and assess risks of customers
KYC is a compliance process that banks use to verify customer identities and evaluate potential risks of illegal activity.
Question 5: Which financial statement shows a bank's assets, liabilities, and equity at a specific point in time?
- Income statement
- Cash flow statement
- Balance sheet (Correct answer)
- Statement of retained earnings
Correct answer: Balance sheet
The balance sheet (also called statement of financial position) captures a snapshot of what a bank owns and owes on a given date.
Question 6: What does the term 'net interest margin' (NIM) measure for a bank?
- The difference between loan amounts approved and disbursed
- The profitability of a bank's lending relative to interest paid on deposits (Correct answer)
- The margin between bid and ask prices of securities
- The ratio of non-performing loans to total loans
Correct answer: The profitability of a bank's lending relative to interest paid on deposits
NIM measures how much a bank earns on its loans and investments compared to what it pays on deposits and borrowings.
Question 7: Under the Dodd-Frank Act, which council monitors systemic risk to the U.S. financial system?
- Federal Open Market Committee (FOMC)
- Financial Stability Oversight Council (FSOC) (Correct answer)
- Consumer Financial Protection Bureau (CFPB)
- Office of Financial Research (OFR)
Correct answer: Financial Stability Oversight Council (FSOC)
The FSOC was created by Dodd-Frank to identify risks to U.S. financial stability and promote market discipline.
Banking Exam Awareness 2
Which U.S. federal agency is primarily responsible for insuring deposits at commercial banks?