Banking Exam Banking Regulations and Ethics 4 — Questions and Answers
Question 1: A bank's Board of Directors has primary responsibility for:
- Processing individual customer transactions
- Setting risk appetite and overseeing management (Correct answer)
- Approving all loans above $100,000
- Filing regulatory reports with the Fed
Correct answer: Setting risk appetite and overseeing management
The Board of Directors is responsible for setting the bank's risk appetite, overseeing management, and ensuring sound governance and compliance.
Question 2: Under Basel III capital requirements, what is the minimum Common Equity Tier 1 (CET1) capital ratio for U.S. banks?
- 2.5%
- 4.5% (Correct answer)
- 6.0%
- 8.0%
Correct answer: 4.5%
Basel III requires banks to maintain a minimum CET1 capital ratio of 4.5% of risk-weighted assets to ensure financial stability.
Question 3: Which law prohibits banks from discriminating in lending based on the racial composition of a neighborhood?
- Community Reinvestment Act
- Fair Housing Act (Correct answer)
- Home Mortgage Disclosure Act
- Equal Credit Opportunity Act
Correct answer: Fair Housing Act
The Fair Housing Act prohibits discriminatory lending practices based on neighborhood demographics, including the illegal practice known as redlining.
Question 4: An employee who reports suspected bank fraud internally or to regulators is protected under which federal law?
- Sarbanes-Oxley Act
- Dodd-Frank whistleblower provisions
- Bank Secrecy Act
- Both A and B (Correct answer)
Correct answer: Both A and B
Both Sarbanes-Oxley and Dodd-Frank provide whistleblower protections and anti-retaliation provisions for employees who report financial misconduct.
Question 5: A bank that collects mortgage application data by race, ethnicity, and gender for regulatory reporting complies with:
- Home Mortgage Disclosure Act (HMDA) (Correct answer)
- Real Estate Settlement Procedures Act (RESPA)
- National Housing Act
- Community Reinvestment Act
Correct answer: Home Mortgage Disclosure Act (HMDA)
HMDA requires mortgage lenders to collect and report loan application data by demographic characteristics to identify potential discriminatory lending patterns.
Question 6: Which of the following best describes the 'know your customer' (KYC) requirement in banking?
- Greeting customers by name when they enter the branch
- Verifying customer identity and understanding their financial activities to prevent money laundering (Correct answer)
- Memorizing customer account numbers for faster service
- Tracking customer complaints for quality improvement
Correct answer: Verifying customer identity and understanding their financial activities to prevent money laundering
KYC requirements mandate that banks verify customer identities and monitor transactions to detect and prevent financial crimes like money laundering and fraud.
Question 7: Under the Expedited Funds Availability Act (Regulation CC), banks must generally make funds from local check deposits available within:
- Same business day
- One business day
- Two business days (Correct answer)
- Five business days
Correct answer: Two business days
Regulation CC generally requires banks to make funds from local check deposits available within two business days of the deposit.
Banking Exam Banking Regulations and Ethics 4
A bank's Board of Directors has primary responsibility for: