Banking Exam Banking Regulations and Compliance 3 — Questions and Answers
Question 1: Under the Truth in Lending Act (TILA), what must lenders disclose using the Annual Percentage Rate (APR)?
- The bank's profit margin on the loan
- The true cost of credit including fees and interest (Correct answer)
- The borrower's credit score impact
- The collateral value requirement
Correct answer: The true cost of credit including fees and interest
TILA requires lenders to disclose the APR, which reflects the total cost of borrowing including interest and fees, enabling consumers to compare loan offers.
Question 2: A bank's Tier 1 capital under Basel III primarily consists of which components?
- Subordinated debt and loan loss reserves
- Common equity and retained earnings (Correct answer)
- Preferred stock and hybrid instruments only
- Customer deposits and interbank loans
Correct answer: Common equity and retained earnings
Tier 1 capital, the core measure of a bank's financial strength, primarily consists of common equity (common stock) and retained earnings.
Question 3: Which regulation prohibits banks from discriminating in credit transactions based on race, color, religion, national origin, sex, marital status, or age?
- Regulation B (Equal Credit Opportunity Act) (Correct answer)
- Regulation Z (Truth in Lending Act)
- Regulation D (Reserve Requirements)
- Regulation CC (Funds Availability)
Correct answer: Regulation B (Equal Credit Opportunity Act)
Regulation B implements the Equal Credit Opportunity Act, which prohibits creditors from discriminating against applicants based on protected characteristics.
Question 4: What is the primary function of the Consumer Financial Protection Bureau (CFPB)?
- Setting federal funds rates
- Supervising and enforcing consumer financial protection laws (Correct answer)
- Insuring bank deposits up to $250,000
- Regulating securities trading
Correct answer: Supervising and enforcing consumer financial protection laws
The CFPB, created by the Dodd-Frank Act in 2010, is responsible for enforcing federal consumer financial protection laws and regulating financial products.
Question 5: Under the Bank Secrecy Act, a Currency Transaction Report (CTR) must be filed for cash transactions exceeding what threshold?
- $5,000
- $10,000 (Correct answer)
- $25,000
- $50,000
Correct answer: $10,000
Banks must file a CTR with FinCEN for any cash transaction exceeding $10,000 in a single business day.
Question 6: Which risk is specifically addressed by stress testing requirements under Dodd-Frank?
- Operational risk from cyberattacks
- Systemic risk from large adverse economic scenarios (Correct answer)
- Reputational risk from negative press
- Credit risk from individual loan defaults
Correct answer: Systemic risk from large adverse economic scenarios
Dodd-Frank stress testing (DFAST) requires large banks to assess their capital adequacy under severely adverse economic scenarios to ensure systemic stability.
Question 7: What does 'know your customer' (KYC) compliance primarily require banks to do?
- Offer personalized financial advice to all customers
- Verify customer identity and assess money laundering risk (Correct answer)
- Provide free credit reports to all account holders
- Disclose all fee structures to new customers
Correct answer: Verify customer identity and assess money laundering risk
KYC programs require banks to verify customer identities, understand the nature of customer relationships, and assess ongoing money laundering and terrorism financing risks.
Banking Exam Banking Regulations and Compliance 3
Under the Truth in Lending Act (TILA), what must lenders disclose using the Annual Percentage Rate (APR)?