Banking Exam Banking Regulations and Compliance 2 — Questions and Answers
Question 1: Under the Community Reinvestment Act (CRA), banks are primarily evaluated on their efforts to meet the credit needs of which population?
- High-net-worth individuals
- Low- and moderate-income communities (Correct answer)
- Foreign investors
- Corporate clients only
Correct answer: Low- and moderate-income communities
The CRA requires banks to help meet the credit needs of all communities they serve, with particular emphasis on low- and moderate-income neighborhoods.
Question 2: Which federal agency is primarily responsible for enforcing the Bank Secrecy Act (BSA)?
- Federal Reserve
- FDIC
- Financial Crimes Enforcement Network (FinCEN) (Correct answer)
- Office of the Comptroller of the Currency
Correct answer: Financial Crimes Enforcement Network (FinCEN)
FinCEN, a bureau of the U.S. Treasury Department, is the primary administrator and enforcer of the Bank Secrecy Act.
Question 3: What is the primary purpose of a Suspicious Activity Report (SAR)?
- To report routine large cash deposits
- To notify regulators of potential money laundering or fraud (Correct answer)
- To document customer complaints
- To report overdraft activity
Correct answer: To notify regulators of potential money laundering or fraud
SARs are filed with FinCEN to alert law enforcement to transactions that may involve money laundering, fraud, or other financial crimes.
Question 4: The Volcker Rule, part of the Dodd-Frank Act, prohibits banks from engaging in which activity?
- Accepting deposits from foreign nationals
- Proprietary trading for their own profit (Correct answer)
- Issuing mortgage-backed securities
- Offering variable-rate loans
Correct answer: Proprietary trading for their own profit
The Volcker Rule restricts banks from making speculative investments (proprietary trading) that do not benefit their customers.
Question 5: Under Regulation E, what is the maximum liability for a consumer who reports an unauthorized electronic fund transfer within 2 to 60 days after receiving a statement?
- $0
- $50
- $500 (Correct answer)
- Unlimited
Correct answer: $500
Regulation E limits consumer liability to $500 if the unauthorized transfer is reported between 2 and 60 days after the periodic statement is sent.
Question 6: Which Basel III requirement specifies the minimum ratio of high-quality liquid assets a bank must hold?
- Capital Adequacy Ratio
- Liquidity Coverage Ratio (LCR) (Correct answer)
- Net Stable Funding Ratio
- Leverage Ratio
Correct answer: Liquidity Coverage Ratio (LCR)
The Liquidity Coverage Ratio requires banks to hold sufficient high-quality liquid assets to cover net cash outflows over a 30-day stress period.
Question 7: What does CAMELS stand for in the context of bank regulatory ratings?
- Capital, Assets, Management, Earnings, Liquidity, Sensitivity (Correct answer)
- Credit, Allocation, Monitoring, Efficiency, Leverage, Solvency
- Capital, Accounting, Market, Equity, Loans, Standards
- Compliance, Assets, Management, Earnings, Liabilities, Solvency
Correct answer: Capital, Assets, Management, Earnings, Liquidity, Sensitivity
CAMELS is a supervisory rating system where each letter represents a key area of bank performance: Capital adequacy, Assets, Management, Earnings, Liquidity, and Sensitivity to market risk.
Banking Exam Banking Regulations and Compliance 2
Under the Community Reinvestment Act (CRA), banks are primarily evaluated on their efforts to meet the credit needs of which population?