Banking Exam Banking Regulations and Compliance 4 — Questions and Answers
Question 1: Which act established the FDIC and the federal deposit insurance system?
- The National Bank Act of 1863
- The Federal Reserve Act of 1913
- The Glass-Steagall Act of 1933 (Correct answer)
- The Bank Holding Company Act of 1956
Correct answer: The Glass-Steagall Act of 1933
The Banking Act of 1933, commonly known as the Glass-Steagall Act, created the FDIC to restore public confidence in the banking system after widespread bank failures during the Great Depression.
Question 2: Under Regulation D, what types of accounts are subject to reserve requirements?
- Savings accounts and CDs only
- Transaction accounts such as demand deposits (Correct answer)
- Money market mutual funds only
- All accounts regardless of type
Correct answer: Transaction accounts such as demand deposits
Regulation D historically imposed reserve requirements primarily on transaction accounts (demand deposits and NOW accounts), though the Federal Reserve reduced these requirements to zero in 2020.
Question 3: What is 'structuring' in the context of banking compliance?
- Organizing a loan portfolio by risk level
- Breaking up large cash transactions to evade CTR reporting thresholds (Correct answer)
- Establishing a tiered fee structure for customers
- Layering investments across multiple asset classes
Correct answer: Breaking up large cash transactions to evade CTR reporting thresholds
Structuring, also called 'smurfing,' involves deliberately breaking transactions into smaller amounts to avoid the $10,000 CTR filing requirement, and is a federal crime.
Question 4: Under the Fair Credit Reporting Act (FCRA), how long can most negative information remain on a consumer's credit report?
- 3 years
- 5 years
- 7 years (Correct answer)
- 10 years
Correct answer: 7 years
The FCRA generally limits most negative credit information, such as late payments and collections, to 7 years from the date of the first delinquency.
Question 5: Which of the following best describes the purpose of the Office of Foreign Assets Control (OFAC)?
- Regulating foreign bank branches operating in the US
- Administering and enforcing economic and trade sanctions (Correct answer)
- Overseeing international wire transfer reporting
- Managing the US foreign exchange reserves
Correct answer: Administering and enforcing economic and trade sanctions
OFAC, a division of the U.S. Treasury, administers sanctions programs targeting foreign countries, entities, and individuals to advance U.S. national security and foreign policy objectives.
Question 6: The Home Mortgage Disclosure Act (HMDA) primarily requires lenders to collect and report data about mortgage applications to help identify what?
- Borrower income levels for tax purposes
- Potential discriminatory lending patterns (Correct answer)
- Interest rate trends in local markets
- Bank profitability on mortgage portfolios
Correct answer: Potential discriminatory lending patterns
HMDA data is used by regulators and the public to identify possible discriminatory lending practices and to assess whether financial institutions are serving the housing needs of their communities.
Question 7: A bank that is found to have an 'unsatisfactory' CRA rating may face which consequence?
- Immediate loss of FDIC insurance
- Denial of applications for mergers, acquisitions, or new branches (Correct answer)
- Mandatory reduction in loan portfolio size
- Automatic increase in reserve requirements
Correct answer: Denial of applications for mergers, acquisitions, or new branches
Regulators may deny or condition approval of a bank's application to merge, open new branches, or expand if the bank has an unsatisfactory CRA rating.
Banking Exam Banking Regulations and Compliance 4
Which act established the FDIC and the federal deposit insurance system?