Banking Exam General 5 — Questions and Answers
Question 1: What is 'structuring' (also known as 'smurfing') in the context of banking regulations?
- Organizing a bank's loan portfolio by risk level
- Breaking up large cash transactions into smaller ones to evade reporting requirements (Correct answer)
- A method for structuring employee bonuses
- Setting up a tiered savings account
Correct answer: Breaking up large cash transactions into smaller ones to evade reporting requirements
Structuring involves deliberately splitting deposits or withdrawals into smaller amounts to avoid the $10,000 CTR filing threshold, which is itself a federal crime.
Question 2: Which of the following is a key function of the Federal Reserve in the U.S. banking system?
- Insuring individual bank deposits
- Setting the federal funds rate to influence monetary policy (Correct answer)
- Chartering all state-chartered banks
- Prosecuting banking fraud cases
Correct answer: Setting the federal funds rate to influence monetary policy
The Federal Reserve sets the federal funds rate target and uses monetary policy tools to manage inflation and employment.
Question 3: What is a 'Suspicious Activity Report' (SAR)?
- A customer complaint filed with the FDIC
- A confidential report banks file with FinCEN when they detect potentially illegal activity (Correct answer)
- A daily report on unusual market movements
- An internal audit of teller transactions
Correct answer: A confidential report banks file with FinCEN when they detect potentially illegal activity
Banks are required to file SARs with the Financial Crimes Enforcement Network (FinCEN) when they suspect transactions involve money laundering or other illegal activity.
Question 4: Which of the following credit scores is generally considered the minimum for qualifying for a conventional mortgage?
- 500
- 580
- 620 (Correct answer)
- 700
Correct answer: 620
Most conventional mortgage lenders require a minimum credit score of 620, though better scores yield lower interest rates.
Question 5: What does 'escrow' mean in a mortgage context?
- The lender's profit on a mortgage
- An account held by a third party to manage funds for property taxes and insurance (Correct answer)
- The penalty for paying off a mortgage early
- The down payment on a home purchase
Correct answer: An account held by a third party to manage funds for property taxes and insurance
An escrow account collects portions of each mortgage payment to ensure property taxes and homeowner's insurance are paid on time.
Question 6: In banking, what is the 'loan-to-value' (LTV) ratio?
- The ratio of interest income to total loans
- The ratio of the loan amount to the appraised value of the collateral (Correct answer)
- The percentage of loans that are delinquent
- The ratio of secured to unsecured loans
Correct answer: The ratio of the loan amount to the appraised value of the collateral
LTV ratio compares the loan amount to the property's appraised value; lower LTV ratios indicate less risk for the lender.
Question 7: What is the purpose of the Truth in Lending Act (TILA)?
- Prevent banks from discriminating in lending decisions
- Require lenders to disclose the true cost of credit, including APR and loan terms (Correct answer)
- Insure consumer deposits up to a set limit
- Set maximum interest rates on consumer loans
Correct answer: Require lenders to disclose the true cost of credit, including APR and loan terms
TILA mandates clear disclosure of credit terms and costs, including the APR, so consumers can compare loan offers accurately.
Banking Exam General 5
What is 'structuring' (also known as 'smurfing') in the context of banking regulations?