Ethics in Banking Flashcards
7 cards from real Banking practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Ethics in Banking flashcards as text
A senior banker receives an expensive gift from a corporate client seeking a favorable loan decision. Accepting the gift most directly violates:
Answer: Anti-bribery and gift policies
Accepting gifts from clients in connection with business decisions violates anti-bribery policies and can constitute commercial bribery under state law.
What does the fiduciary standard require of a bank's trust department when managing a client's assets?
Answer: To act solely in the best interest of the beneficiary
A fiduciary must put the beneficiary's interests first, which is a higher standard than the suitability standard applied to general investment advisors.
Which of the following scenarios best illustrates 'churning' in a banking or investment context?
Answer: Excessively trading a client's account to generate commissions
Churning involves excessive trading in a client's account to generate commissions for the advisor rather than to benefit the client.
A community bank's board of directors approves executive bonuses tied to short-term loan volume, which incentivizes approving risky loans. This is an example of a failure in:
Answer: Corporate governance and incentive structure design
Poor incentive structures that reward short-term risk-taking over long-term stability represent a fundamental corporate governance failure.
Under U.S. banking ethics standards, what is 'predatory lending'?
Answer: Imposing unfair, deceptive, or abusive loan terms on vulnerable borrowers
Predatory lending involves exploiting borrowers—often the elderly, low-income, or financially unsophisticated—with unfair terms designed to extract fees rather than serve the borrower's interests.
When a bank employee faces a conflict between following a manager's unethical instruction and complying with the law, the ethical course of action is to:
Answer: Comply with legal and regulatory requirements and escalate through proper channels
Employees have both an ethical duty and, in many cases, a legal obligation to comply with the law and report misconduct through available channels.
Which practice violates fair lending laws when applied inconsistently across protected classes of borrowers?
Answer: Negotiating loan pricing differently based on race
Applying different pricing, terms, or standards based on a borrower's race, national origin, or other protected class violates the Fair Housing Act and ECOA.