Credit & Lending Solutions for Private Clients Flashcards
7 cards from real CPB practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Credit & Lending Solutions for Private Clients flashcards as text
What is a subscription line of credit (capital call facility) used for in private banking?
Answer: A short-term credit facility secured by committed but uncalled capital from fund investors
A subscription line of credit is secured by the uncalled capital commitments of limited partners in a private equity fund, providing short-term liquidity between capital calls.
What characterizes a bullet repayment loan structure?
Answer: Principal is repaid in a single lump sum at maturity, with only interest paid during the term
In a bullet repayment loan, the borrower makes periodic interest-only payments during the loan term and repays the entire principal balance in one lump sum at maturity.
Which lending product is specifically designed to help private banking clients monetize concentrated equity positions without immediately selling shares?
Answer: Margin loan or exchange fund structure
Margin loans and exchange fund structures allow clients with large concentrated equity positions to borrow against or diversify holdings without triggering an immediate taxable realization event.
What is a non-recourse loan in private banking?
Answer: A loan where the lender's recovery is limited solely to the pledged collateral
In a non-recourse loan, the lender can only look to the pledged collateral for repayment and has no right to pursue the borrower's other personal assets if the collateral proceeds are insufficient.
What is the primary purpose of a collateral management agreement (CMA) in private banking lending?
Answer: To define the terms, maintenance requirements, and remedies governing pledged collateral
A CMA formalizes the legal terms under which collateral is pledged, including eligible asset types, haircut percentages, margin call procedures, and the bank's enforcement rights upon default.
What is the main advantage of using a Lombard credit line over liquidating a portfolio to meet a client's liquidity need?
Answer: A Lombard line preserves the investment position and defers potential capital gains taxes
Borrowing via a Lombard line keeps the portfolio invested and avoids triggering capital gains taxes that would result from selling appreciated assets to generate liquidity.
Which U.S. regulation most directly governs the extension of credit on securities by brokers and dealers, affecting private bank margin lending?
Answer: Regulation T, issued by the Federal Reserve
Regulation T, promulgated by the Federal Reserve Board, sets initial margin requirements for credit extended by brokers and dealers on securities, directly governing securities-backed lending in private banking.