Banking Regulatory Compliance 4 — Questions and Answers
Question 1: What is 'Tier 1 capital' in the context of Basel III bank capital requirements?
- Total assets minus total liabilities
- Core capital including common equity and disclosed reserves (Correct answer)
- Subordinated debt and hybrid instruments
- Assets held in reserve at the Federal Reserve
Correct answer: Core capital including common equity and disclosed reserves
Tier 1 capital represents a bank's core capital base — primarily common equity Tier 1 (CET1) plus additional Tier 1 instruments — used to absorb losses on a going-concern basis.
Question 2: Under the Home Mortgage Disclosure Act (HMDA), what must mortgage lenders report?
- Only approved mortgage applications
- Data on mortgage applications, originations, and purchases including demographic information (Correct answer)
- Only mortgages exceeding $1 million in value
- Internal credit scoring criteria used for underwriting
Correct answer: Data on mortgage applications, originations, and purchases including demographic information
HMDA requires covered lenders to collect and report detailed data on mortgage applications and originations, including applicant demographics, to help identify potential discrimination.
Question 3: What is the main function of the Financial Crimes Enforcement Network (FinCEN)?
- Setting interest rate policy for financial institutions
- Collecting and analyzing financial transaction data to combat money laundering and terrorism financing (Correct answer)
- Insuring bank deposits up to $250,000
- Supervising national banks and federal savings associations
Correct answer: Collecting and analyzing financial transaction data to combat money laundering and terrorism financing
FinCEN is a bureau of the U.S. Treasury Department that collects and analyzes financial transaction reports to support law enforcement efforts against money laundering, terrorism financing, and other financial crimes.
Question 4: Under the CARD Act of 2009, credit card companies must provide how many days' advance notice before changing key account terms?
- 15 days
- 30 days
- 45 days (Correct answer)
- 60 days
Correct answer: 45 days
The Credit Card Accountability Responsibility and Disclosure Act requires card issuers to provide at least 45 days' advance notice before making significant changes to interest rates, fees, or other key terms.
Question 5: Which of the following best describes 'redlining' in banking?
- Highlighting high-risk loans in red on internal documents
- Refusing to provide financial services to residents of certain geographic areas based on race or ethnicity (Correct answer)
- Marking delinquent accounts for collections
- Setting a credit limit below which certain products are not offered
Correct answer: Refusing to provide financial services to residents of certain geographic areas based on race or ethnicity
Redlining is the discriminatory practice of denying or limiting financial services to specific neighborhoods based on the racial or ethnic composition of those communities.
Question 6: What does the Consumer Financial Protection Bureau (CFPB) Unfair, Deceptive, or Abusive Acts or Practices (UDAAP) standard prohibit?
- Only acts that cause direct financial harm over $1,000
- Consumer financial products or services that harm consumers through unfair, deceptive, or abusive conduct (Correct answer)
- Only written misrepresentations in advertising
- Practices that affect fewer than 100 consumers
Correct answer: Consumer financial products or services that harm consumers through unfair, deceptive, or abusive conduct
UDAAP prohibits financial service providers from engaging in practices that are unfair (cause substantial injury), deceptive (mislead consumers), or abusive (exploit consumers' lack of understanding).
Question 7: The Flood Disaster Protection Act requires federally regulated lenders to obtain flood insurance for properties in what type of area?
- Any property within 1 mile of a body of water
- Properties located in Special Flood Hazard Areas (SFHAs) identified by FEMA (Correct answer)
- All commercial properties regardless of location
- Properties where the loan exceeds $500,000
Correct answer: Properties located in Special Flood Hazard Areas (SFHAs) identified by FEMA
Lenders must require flood insurance on improved real estate or mobile homes located in FEMA-designated Special Flood Hazard Areas when originating or renewing federally backed loans.
Banking Regulatory Compliance 4
What is 'Tier 1 capital' in the context of Basel III bank capital requirements?