FIA Financial Regulation & Supervision 2 — Questions and Answers
Question 1: Which regulatory body oversees the safety and soundness of U.S. national banks and federal savings associations?
- FDIC
- OCC (Correct answer)
- NCUA
- CFPB
Correct answer: OCC
The Office of the Comptroller of the Currency (OCC) charters, regulates, and supervises all national banks and federal savings associations.
Question 2: Under Basel III, what is the minimum Common Equity Tier 1 (CET1) capital ratio required for banks?
- 2.0%
- 4.5% (Correct answer)
- 6.0%
- 8.0%
Correct answer: 4.5%
Basel III requires a minimum CET1 ratio of 4.5% of risk-weighted assets, the highest quality form of regulatory capital.
Question 3: What is the primary purpose of the Financial Stability Oversight Council (FSOC)?
- Setting monetary policy
- Identifying systemic risks to U.S. financial stability (Correct answer)
- Regulating securities exchanges
- Insuring bank deposits
Correct answer: Identifying systemic risks to U.S. financial stability
FSOC was created by Dodd-Frank to identify risks to financial stability, promote market discipline, and respond to emerging threats to the financial system.
Question 4: A bank's leverage ratio under U.S. regulatory requirements is calculated as Tier 1 capital divided by:
- Risk-weighted assets
- Total average assets (Correct answer)
- Tangible common equity
- Total liabilities
Correct answer: Total average assets
The leverage ratio uses total average assets (not risk-weighted), providing a simpler, non-risk-based capital constraint.
Question 5: Which provision of the Dodd-Frank Act restricts proprietary trading by banks?
- Glass-Steagall Rule
- Volcker Rule (Correct answer)
- Sarbanes-Oxley Rule
- Basel Rule
Correct answer: Volcker Rule
The Volcker Rule, Section 619 of Dodd-Frank, prohibits banks from engaging in short-term proprietary trading of certain financial instruments.
Question 6: Under the Community Reinvestment Act (CRA), federal regulators evaluate banks on their record of:
- Maintaining adequate capital buffers
- Meeting credit needs of low- and moderate-income communities (Correct answer)
- Preventing insider trading
- Complying with anti-money laundering laws
Correct answer: Meeting credit needs of low- and moderate-income communities
The CRA requires federal regulators to assess banks' records of helping meet the credit needs of their entire community, including low- and moderate-income neighborhoods.
Question 7: Which of the following is a key function of the Securities Investor Protection Corporation (SIPC)?
- Regulating broker-dealer conduct
- Protecting investors if a brokerage firm fails (Correct answer)
- Insuring deposits at commercial banks
- Setting margin requirements for securities
Correct answer: Protecting investors if a brokerage firm fails
SIPC protects customers of failed brokerage firms by recovering missing cash and securities up to $500,000 per customer.
FIA Financial Regulation & Supervision 2
Which regulatory body oversees the safety and soundness of U.S. national banks and federal savings associations?