Certified Regulatory Compliance Manager Questions + Answers Part 2
Posted: Mon Feb 21, 2022 7:04 am
Explanation/Reference: QUESTION 112
A bank is conducting due diligence for a foreign correspondent bank account. Which of the following is NOT required information?
A. The identities of the correspondent bank’s true ownership
B. Information on the government licenses of the correspondent bank
C. Copies of the tax return of the correspondent bank
D. Information on the products and services the correspondent bank offers
Correct Answer: C Section: (none) Explanation
Explanation/Reference: QUESTION 113
Which of the following transactions requires completion of FinCEN Form 104, a CTR?
A. Deposit of checks totaling $12,000 to a checking account B. Cash purchase of a cashier’s check for $7,800
C. Cash withdrawal of $3,000 from a checking account
D. Cashing of a $14,000 check for a customer
Correct Answer: D Section: (none) Explanation
Explanation/Reference: QUESTION 114
On which of the following loans must a bank maintain records under the Bank Secrecy Act? A. All loans exceeding $5,000 and secured by real property
B. All loans exceeding $5,000, but not secured by real property C. All loans exceeding $10,000 and secured by real property
D. All loans exceeding $10,000, but not secured by real property
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 115
An individual comes into the bank and makes a $6,000 cash deposit into a checking account. At the same time, the individual buys a $7,000 cashier’s check with cash. According to the Bank Secrecy Act, what is the bank is required to do?
A. File a SAR for $13,000
B. File a CTR for the $6,000 cash deposit
C. Aggregate the transactions and retain information about the purchase of the cashier’s check
D. Obtain the recordkeeping information for the purchase of the cashier’s check and complete a CTR for the total cash-in transaction of $13,000
Correct Answer: D Section: (none) Explanation
Explanation/Reference: QUESTION 116
Which of the following is NOT considered an acceptable form of identification for an individual when completing a CTR?
A. U.S. passport
B. Long-term deposit account relationship
C. State-issued photo identification (e.g., driver’s license)
D. Photo identification card issued by a local government agency
Correct Answer: B Section: (none) Explanation
Explanation/Reference: QUESTION 117
Which of the following customers may be exempted under Phase II of the Bank Secrecy Act?
A. Government agencies
B. Correspondent banks
C. Payroll customers
D. Businesses whose stocks are traded on a national stock exchange
Correct Answer: C Section: (none) Explanation
Explanation/Reference: QUESTION 118
In which of the following circumstances is it LEAST appropriate for a bank to file a SAR regarding Internet activity?
A. Bank determines that one of its customers is the victim of identity theft
B. Bank becomes aware of identity theft of its domain name (i.e., another entity selects a name similar to the bank’s in order to confuse customers and obtain confidential financial information)
C. Bank discovers that someone has hacked into its data system in order to obtain confidential customer data
D. Bank determines through its transaction-monitoring program that a customer is making electronic transfers between his own checking and savings accounts that are just below the $10,000 reporting level
Correct Answer: D Section: (none) Explanation
Explanation/Reference: QUESTION 119
When completing and filing a SAR, what is the bank NOT required to do?
A. Submit a copy of the supporting documentation with the SAR B. Submit the SAR within 30 days of the initial detection of facts
C. Report the SAR information to the bank’s board of directors
D. Maintain a copy of the SAR and supporting documentation for 5 years
Correct Answer: A Section: (none) Explanation
Explanation/Reference: QUESTION 120
What should a bank’s Bank Secrecy Act compliance program include?
A. All lobby notice requirements
B. The one-year record retention requirements
C. Designation of individuals responsible for day-to-day compliance D. A list of types of loans covered by the Act
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 121
A routine review of account records reveals that suspicious activity involving foreign currency has occurred in the account of one of the bank’s directors. Which of the following actions should be taken FIRST?
A. A SAR should be filed.
B. The bank’s board of directors should discuss the account activity without the affected director being present. C. The bank’s president should meet with the affected director to discuss the account activity.
D. The bank should file a CTR, checking the box that indicates the report is for suspicious activity.
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 122
A compliance officer is constructing a review of a transaction in which M, a deposit account customer, used cash to purchase travelers’ checks in an amount of $4,000. The compliance officer must determine compliance with financial recordkeeping and currency reporting regulations. Which of the following pieces of information must be part of the bank’s records for this transaction?
A. M’s date of birth
B. M’s deposit account number
C. The serial numbers of the travelers’ checks purchased D. The name of the branch where the transaction occurred
Correct Answer: C Section: (none) Explanation
Explanation/Reference: QUESTION 123
When all the required information is NOT provided by a person purchasing a cashier’s check with $8,000 in currency, what should the bank do?
A. Refuse the transaction
B. Complete the transaction and record available information
C. Complete the transaction and file a SAR
D. Complete the transaction and insist that the customer return with the required information
Correct Answer: A Section: (none) Explanation
Explanation/Reference: QUESTION 124
Which of the following is MOST effective in strengthening an anti-money- laundering program involving cash transactions?
A. Review all deposits of $25,000 or more
B. Complete CTR worksheets on all cash transactions of $5,000 or more
C. Complete SAR worksheets on all cash transactions of $5,000 or more D. Monitor cash transactions of less than $10,000 for suspicious patterns
Correct Answer: D Section: (none) Explanation
Explanation/Reference: QUESTION 125
For which of the following is a bank most likely to be in danger of receiving a cease and desist order?
A. Repetition in a BSA examination of a noncritical deficiency reported in a previous BSA examination B. Failure to document AML training to its part-time clerical employees
C. A 2 percent error rate on the bank’s CTRs
D. Failure to file suspicious activity reports
Correct Answer: D Section: (none) Explanation
Explanation/Reference: QUESTION 126
Which of the following countries are currently subject to the Office of Foreign Assets Control Regulations?
A. North Korea B. Jordan
C. Bahrain
D. Russia
Correct Answer: A Section: (none) Explanation
Explanation/Reference: QUESTION 127
What should a bank do when it receives a request from a customer to transfer funds to an individual in Iraq?
A. Conduct the transfer as requested
B. Conduct the transfer if the individual and the financial institution are not on the SDN list C. Block the transfer
D. Conduct the transfer and then notify OFAC immediately
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
QUESTION 128
ACME Bank is a $600 million institution with 15 branches within three counties. Because of its proximity to Mexico, the bank has many foreign national customers and makes many foreign wire transfers for its customers. Currently the bank’s branch managers print the OFAC list of SDNs and place them in strategic places in each branch. The wire transfer department keeps its own copy of the list. The compliance officer has implemented an annual auditing program to check the bank’s compliance with OFAC regulations. The findings of this audit are provided to the bank’s board of directors annually. The bank’s regulatory agency has indicated to management that the bank has a high risk for BSA/AML/OFAC compliance. Of the following actions, which would be the most effective to strengthen the bank’s OFAC compliance?
A. Conduct compliance audits twice a year
B. Purchase and implement interdiction software for the wire transfer area
C. As an internal control procedure, require the BSA officer to check the OFAC Web site daily for any changes to the SDN list D. Routinely provide account transaction information to federal security agencies so suspicious patterns can be detected
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
QUESTION 129
State National Bank is a $250 million community bank. It makes a variety of consumer and commercial loans, regularly transmits funds via wire transfers for its customers, and issues commercial and stand-by letters of credit. Which of the following transactions can State National make without checking the OFAC SDN list and without incurring liability?
A. Send a wire transfer via its correspondent bank in New York for a commercial customer. B. Sell a cashier’s check payable to a third party.
C. Cash an on-us check over-the-counter for a noncustomer.
D. None. The bank can be liable for all.
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 130
FA presents cash to the bank and seeks to wire it to his spouse, RA, in Cub A. The OFAC list identifies RA as a specially designated national. Under OFAC Regulations, what should the bank do?
A. Block the transfer
B. Conduct the transfer as requested and take no further action
C. Conduct the transfer as requested and notify OFAC immediately
D. Conduct the transfer only if the bank determines that Cuba is not a blocked country
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 131
Your institution has identified a transaction by an existing depositor that should be blocked under OFAC requirements. The branch manager contacts you for specific instructions. Before reporting the transaction to OFAC, what should the bank do?
A. Reject the transaction
B. Process the transaction
C. Close the customer’s account
D. Place the funds in an interest-bearing account
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 132
Your bank’s president comes back from an industry conference and tells the compliance officer that she attended a presentation about OFAC. She heard the bank could be fined for not adhering to OFAC requirements. Thus, she has directed that every bank transaction be reviewed for OFAC compliance. What is the most appropriate statement the compliance officer could make to the bank president?
A. The bank is already in compliance because OFAC checks are performed on all new depositors
B. The bank has assessed its OFAC risk and has implemented risk-based OFAC procedures
C. OFAC does not apply because the bank does not conduct business in foreign countries or with foreign nationals D. Banks are usually not fined for OFAC violations unless they conduct transactions with SDNs or blocked countries
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
QUESTION 133
The BSA officer has just been notified by the chief operations officer that, due to a glitch in the bank’s OFAC interdiction software, wires have been regularly transmitted to a bank on the SDN list. Based on the OFAC Enforcement Guidance, what should the BSA Officer do FIRST to attempt to mitigate any penalties?
A. Review the OFAC wire policies and procedures to determine how the errors occurred B. Stop and hold all wires to the bank on the SDN list
C. Investigate the customer who sends these wires
D. Self-report the activity to OFAC
Correct Answer: B
Section: (none) Explanation
Explanation/Reference:
QUESTION 134
Bank A offers safe deposit services in a vault area that contains a door too narrow for wheelchair passage. The bank cannot widen the door because of the vault construction. Therefore, when a customer in a wheelchair needs access to a safe deposit box the customer cannot enter the vault. The bank provides viewing rooms for all safe deposit customers, and one of these rooms has a door wide enough for a disabled customer to enter. Which of the following must the bank do to provide safe deposit box service to wheelchair customers?
A. Remove the old vault and install a new vault to allow wheelchair access
B. Construct an alternative facility in which to store the safe deposit boxes of wheelchair customers
C. Require wheelchair customers to be accompanied by a walking individual to retrieve the safe deposit box for the customer
D. Bring the safe deposit box to the customer and provide an accessible area where the customer may privately have access to the contents
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 135
The mortgage lending department of Bank XYZ received some inquiries from potential applicants who are visually impaired. The bank would like to comply with ADA concerning these potential applicants, but it does not want to spend a significant amount of money. Which of the following statements is true?
A. The bank must have its loan application and disclosures translated into Braille.
B. The bank may have a loan assistant read each loan application and disclosure document to the applicant and assist in completion of the forms. C. The bank may require the applicant to bring a sighted friend or relative to the bank to assist in completing the application.
D. The bank may make a policy not to lend money to blind persons.
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
QUESTION 136
Which of the following activities is permitted under ADA?
A. Issuing a policy against making loans to health care providers who regularly work with infectious patients
B. Prohibiting smoking anywhere in the bank building
C. Providing readers to visually impaired loan applicants for a $15 fee
D. Requiring disabled depositors to use a teller window that is specially constructed for the use of disabled persons
Correct Answer: B Section: (none) Explanation
Explanation/Reference: QUESTION 137
Under the ADA, what can an employer do?
A. Inquire about a disability if the disability is obvious to the interviewer at the time of the job interview
B. Inquire about a disability when offering a job provided the disability is related to the job requirements
C. Refuse to make an accommodation for a disability if 50 persons or fewer are employed
D. Note the disability in the employee’s file so that other managers will be aware of it when interviewing the employee for future position changes
Correct Answer: B Section: (none) Explanation
Explanation/Reference: QUESTION 138
Which of the following employment practices is NOT legal under ADA?
A. Establishing a policy that prohibits hiring alcoholic applicants
B. Establishing a policy that prohibits smoking at any time at work
C. Holding employees who are certified alcoholics to the same performance standards as other employees D. Refusing to hire an employee who currently uses illegal drugs
Correct Answer: A
Section: (none) Explanation
Explanation/Reference:
QUESTION 139
Bob’s wife is HIV-positive due to a blood transfusion during an appendectomy 15 years ago. She is not yet sick, but takes medication to prevent the onset of AIDS. Bob occasionally needs to take time off from work to take her for testing at Johns Hopkins in Baltimore. Because of complaints about Bob’s exposure to this disease, employees have asked HR to limit his contact with them and with customers. The bank has asked Bob not to eat in the lunchroom with the other employees and has placed Bob in a position where he has limited customer contact. Does this company have any potential ADA liability?
A. No. Bob’s exposure to HIV could endanger other employees and customers
B. No. Because the hiring manager does not know that Bob actually has HIV or AIDS, there is no liability
C. Yes. Because the manager has associated Bob with this disease, the “associated with” rule applies
D. Yes. Because the manager has regarded Bob as having a disability, he has been “regarded as” disabled and the ADA applies
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 140
Roger Jameson is the head of the consumer loan department at First National Bank. He is a regular participant in a lending committee of a local finance trade association. The committee meets once a month at a local hotel. After the committee meetings, Roger and several other committee members who are officers at other banks in town go to a hotel restaurant and talk for a couple of hours before leaving. During these informal conversations Roger learned that the other members require the car dealerships in town that sell consumer installment contracts to the banks to refrain from selling them to local savings and loan associations. Roger believes that this is a good idea and would like to implement it at First National. Is there a problem with doing so?
A. No, because interest rates are not involved.
B. No, because this decision would have no effect on the cost to the consumer.
C. Yes, unless there are enough dealerships in town to provide contracts to all of the institutions. D. Yes. Restricting the dealerships is a restraint of trade.
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 141
First National is developing a consumer checking account that can access a line of credit. This is the first time the bank has ever had such a product, although this type of credit facility has been popular with other banks in town. To determine what interest rate to charge on this account, an officer of First National called some of his friends at other local banks offering this type of credit and asked several questions, including the interest rate charged on this type of account and what internal factors the banks use to set the rate. After obtaining this information, First National determines that it could charge approximately 2 percent more than it originally planned. Is there anything wrong with this course of action?
A. Yes. Communicating with competitors for purposes of setting prices is wrong.
B. No. Communication itself is never wrong regardless of the subject matter.
C. Yes. The bank should have disguised its identity in calling its competitors.
D. No. The bank could probably have determined the prices eventually without calling the banks directly.
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 142
Martha Smith of First National Bank is attempting to close a large commercial loan to a manufacturing equipment company. In negotiating the interest rate on the loan Martha states that if the company will move some of its demand accounts to the bank, it could get a lower interest rate. Is this wrong?
A. Yes. It violates the anti-tying provisions.
B. Yes. It is a restraint of trade.
C. No, unless moving the accounts is a condition of the loan.
D. No. The bank may condition the loan on the customer placing a deposit in the bank.
Correct Answer: D Section: (none) Explanation
Explanation/Reference: QUESTION 143
First National Bank owns a data processing company that sells financially related data processing services to various businesses in the community. Daniel Tyler, a
loan officer, is negotiating a loan to a local CPA firm. He would like to make the loan conditional on the CPA firm’s use of the subsidiary data processing firm. May he do so?
A. Yes, because it is not a bank service.
B. Yes, because it is not related to pricing.
C. No. It is an illegal tie-in.
D. No, unless the company was planning to obtain a new data processing service provider anyway.
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 144
Mills Company, Inc., is a manufacturing company with a working capital line of credit from First National Bank. The credit agreement governing the loan states that Mills cannot obtain additional unsecured credit without the approval of the bank. Mills believes that such a clause violates the Bank Holding Company Act’s anti- tying clause. Does it?
A. Yes. It is a restraint of trade.
B. Yes, unless the bank will reasonably allow additional credit at Mills’s request. C. No, since this clause relates to the soundness of the credit
D. No, unless the bank refuses to grant additional credit to Mills itself
Correct Answer: C Section: (none) Explanation
Explanation/Reference: QUESTION 145
Which of the following would NOT be acceptable under the Bank Bribery Act and the relevant guidelines?
A. A luncheon paid for by a bank customer after a transaction is closed
B. A gift of a hunting rifle to a loan officer from a borrower at Christmas
C. The gift of a gold watch to a loan officer from a customer who is the loan NOTES officer’s cousin D. An award of a writing pen and pencil set to a bank officer by a civic organization
Correct Answer: B Section: (none) Explanation
Explanation/Reference: QUESTION 146
Which of the following is NOT a written record the bank should retain in complying with the Bank Bribery Act?
A. A copy of the bank’s internal code of conduct
B. A list of all gifts received by bank officers during the year C. Disclosures of unauthorized gifts
D. A list of all bank officers’ outside business interests
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
QUESTION 147
Harvey Smith is a loan officer at First National Bank. Which of the following of Harvey’s outside business interests may be considered to be a conflict of interest that should be disclosed to the bank?
A. His ownership of 4,000 shares of stock in a local car dealership (the car dealership is not a bank customer) B. His wife’s position as chair of the board of a local bank
C. His attendance at a party hosted by one of his customers where other financial institutions were represented D. His role as honorary chair of a fund drive for a local charitable organization
Correct Answer: B
Section: (none) Explanation
Explanation/Reference:
QUESTION 148
Martin Taylor, a loan officer at First National Bank, is a long-time friend of Bill Evans, a local homebuilder. Bill would like a line of credit at the bank and discusses the potential loan with Martin. During the discussion, Martin expresses his desire to build a house one day and Bill offers to build him one “at cost plus 5 percent.” If Martin accepts Bill’s offer, can he continue to act as his loan officer?
A. No. The value of the gift is too great.
B. Yes, if Martin discloses this fact to the bank.
C. Yes, if Martin does not let the discount on the house affect his decision making process. D. Yes, if the bank’s code of conduct allows such activity.
Correct Answer: A Section: (none) Explanation
Explanation/Reference: QUESTION 149
Which of the following factors would NOT be considered when evaluating whether specific behavior by a banker violates the statute?
A. The social and family ties of the banker
B. The standard for business amenities and entertaining in that particular part of the country C. Whether there was a demonstrable business purpose
D. Whether a business transaction was consummated as a result
Correct Answer: D Section: (none) Explanation
Explanation/Reference: QUESTION 150
When does a gift accepted by a banker clearly violate the Bank Bribery Act?
A. When it is given for personal reasons
B. When it is given with corrupt intent
C. When it is valued at a dollar amount exceeding $50
D. When it is not given in connection with a generally accepted holiday
Correct Answer: B Section: (none) Explanation
Explanation/Reference: QUESTION 151
Which of the following transactions does NOT require prior approval of the Federal Reserve Board?
A. The formation of a bank holding company
B. The acquisition by a bank holding company of a subsidiary
C. The acquisition of 25 percent of voting stock of a bank by another bank, in good faith, in its fiduciary capacity with no power to vote
D. The acquisition of 25 percent of voting stock of a bank by another bank in its fiduciary capacity for the benefit of the acquiring bank’s employees
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 152
First National Bancshares, Inc., a bank holding company, filed an application with its Federal Reserve Bank on March 1 to acquire a subsidiary bank. On March 15 the Federal Reserve Board asked First National for more information. On April 1 the Federal Reserve Bank received the completed application and accepted it. On April 5 the Federal Reserve Bank notified First National of the April 1 acceptance and referred the application to the Federal Reserve Board. Under the normal rules, by what date must the Federal Reserve Board act on the application?
A. June 1 B. April 30 C. June 5 D. July 1
Correct Answer: A Section: (none) Explanation
Explanation/Reference: QUESTION 153
Which of the following activities is NOT a permissible nonbanking activity?
A. Servicing mortgage loans
B. Providing general courier services to the businesses around the bank office C. Providing mortgage loan data processing services to mortgage companies D. Acting as a broker for credit life insurance
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
QUESTION 154
First National Bankshares, Inc., a bank holding company, held substantially all of the voting stock of an equipment manufacturing corporation as collateral for a loan to the owner. On May 15 the borrower defaulted and on September 1, after proper notice was given, the bank foreclosed its security interest on the stock and exercised its rights to vote the stock at appropriate times. On December 31 the bank transferred the stock to a subsidiary corporation, FNB, Inc., to market the stock for sale more effectively. What is the longest time period that FNB, Inc., can possibly hold the stock?
A. Up to two years from September 1 B. Up to five years from September 1 C. Up to two years from December 31 D. Up to five years from December 31
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
QUESTION 155
Which of the following is NOT a factor considered by the Federal Reserve Board when it evaluates an application under Regulation Y?
A. The financial strength of the applicant
B. The management strength of the applicant
C. The current nonbanking activities of the applicant D. The effect of the transaction on competition
Correct Answer: C Section: (none) Explanation
Explanation/Reference: QUESTION 156
Which of the following is NOT a corporate practice required of bank holding companies?
A. Each bank subsidiary must file a notice with the Federal Reserve before offering a new product.
B. Each bank subsidiary must conduct its operations in a safe and sound manner.
C. Each bank subsidiary must be insured by the FDIC.
D. Each bank subsidiary must file a notice with the Federal Reserve before purchasing any of its own securities.
Correct Answer: A Section: (none) Explanation
Explanation/Reference: QUESTION 157
For which of the following business activities must a bank holding company obtain prior approval of the Federal Reserve Board?
A. Operating an auto club service
B. Serving as a safe deposit company
C. Operating as a management consulting firm for financial institutions D. Selling installment loan data processing
Correct Answer: A
Section: (none) Explanation
Explanation/Reference:
QUESTION 158
ACME national bank plans to acquire Smith Brothers insurance agency and make it an operating subsidiary of the bank. ACME is considered a well-managed and adequately capitalized bank. What regulatory-related action must ACME take to obtain the agency?
A. Complete the sale of the agency and notify the OCC within 10 days B. Complete the sale of the agency and notify the OCC within 30 days C. No regulatory notice is required
D. Notify the OCC before completing the sale
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 159
First State Bank, a state nonmember institution, plans to purchase a company that would be a financial subsidiary of the bank. First State will send a notice to the FDIC of its proposed acquisition. Of the following factors, which one would NOT be relevant to the FDIC’s consideration of the bank’s acquisition?
A. First State Bank’s asset size
B. Whether First State Bank is well capitalized
C. First State Bank’s CRA rating
D. The impact of the acquisition on First State Bank’s safety and soundness
Correct Answer: A Section: (none)
Explanation Explanation/Reference:
QUESTION 160
A subsidiary of First National Bank can legally participate in all but one of the following businesses. In which business may the subsidiary NOT legally participate?
A. Selling securities
B. Selling insurance
C. Developing real estate
D. Providing financial planning advice
Correct Answer: C Section: (none) Explanation
Explanation/Reference: QUESTION 161
In which of the following cases would First National Bank be required to give a branch closing notice?
A. Removing its ATM from the local grocery store
B. Opening a deposit-taking facility in a kiosk during a college fair for one weekend C. Moving its central branch across the street
D. Closing its near-town neighborhood branch
Correct Answer: D Section: (none) Explanation
Explanation/Reference: QUESTION 162
In which of the following situations does a bank need to post a branch closing notice? A. A bank closes a branch temporarily because of heavy hurricane damage.
B. A bank closes a branch in a suburban neighborhood because business has not adequately developed there.
C. A bank decides not to exercise its option to purchase a branch it has been temporarily running for the FDIC as a part of a purchase of a failed institution. D. A bank closes a branch and moves it 850 feet down the street.
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
QUESTION 163
Second National has decided to close one of its less profitable neighborhood branches. Which of the following actions is NOT required of the bank under federal law?
A. Publish a notice of the closing in the local newspaper B. Send a notice to its regulatory agency
C. Send notices to the branch customers
D. Post a notice at the branch
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 164
Big Nationwide Bank has decided to close one of its smaller branches in Texas. A community association from the small town where the branch is located is not pleased with the decision because Big Nationwide’s branch is the only financial institution in the small town. The community group complains to the federal agency that regulates Big Nationwide. What must Big Nationwide do in light of this protest against its decision to close the branch?
A. Re-post the notice and wait an additional 90 days
B. Send the federal agency a detailed statistical analysis that is consistent with its branch closing policy and that proves why closing the branch is economically necessary
C. Meet with the community group, explain their reasoning, and help the group find some alternative financial services D. Nothing is required
Correct Answer: D
Section: (none) Explanation
Explanation/Reference: QUESTION 165
In which of the following cases is a branch closing notice required?
A. Bank A decides to stop cashing checks for noncustomers at its neighborhood branch.
B. Bank B and Bank C merge. Each has a branch in the near-town neighborhood. The merged organization is closing the branch that was formerly Bank B and merging it into the branch that was formerly Bank C.
C. Bank D is closing its drive-through facilities in its near-town neighborhood branch, although its regular facility is remaining.
D. Bank E is closing its near-town facility because of its outmoded building and equipment. Bank E has commissioned a study from a local development center to determine if it is feasible to re-open its branch in the future.
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 166
A bank has a stand-alone ATM in a high crime area. Due to concerns for the safety of individuals using the ATM, management decides to close it. According to branch closing policy statements issued by federal regulators, which of the following actions should the bank take?
A. No action is required because an ATM is not, by definition, a branch.
B. Post a notice at the ATM at least 30 days before the intended closing date.
C. Notify the bank's federal regulatory agency at least 90 days before the intended closing date. D. Mail a notice to all customers at least 90 days before the intended closing date.
Correct Answer: A Section: (none) Explanation
Explanation/Reference: QUESTION 167
Which of the following must be included in a branch closing notice to a bank's regulatory agency?
A. Comments from customers who oppose the closing B. Detailed statement of the reasons for the closing
C. Copy of the notice to be sent to affected customers D. Copy of board minutes reflecting the decision to close
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
QUESTION 168
A bank is planning to sell eight branches. The compliance officer participates on a bank committee to oversee the process. What should be the compliance officer’s PRIMARY concern?
A. That the bank's revenues will not be affected severely
B. That the branches are closed in accordance with bank policy
C. That customers of the branches will continue to have access to banking services D. That the bank’s confidential information is returned to the main office
Correct Answer: B Section: (none) Explanation
Explanation/Reference: QUESTION 169
If a bank receives a request for financial disclosure, how may the bank fulfill this request?
A. Provide copies of the call reports covering the current and previous year
B. Provide a copy of its statement of condition covering the year immediately preceding the request C. Provide a copy of its most recent, unaudited financial statement
D. Provide copies of its Uniform Bank Performance Reports for three consecutive years
Correct Answer: A
Section: (none) Explanation
Explanation/Reference: QUESTION 170
Which of the following actions is acceptable under the financial reporting regulations?
A. Attaching a narrative explanation by management of the reasons for a cease and desist order as a part of the annual disclosure B. Attaching a copy of the bank’s last safety and soundness examination to the annual disclosure
C. Including a statement that indicates that the bank’s regulatory agency has reviewed the financial information
D. Using an unaudited financial statement for the past two years as an annual disclosure statement
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 171
A bank may include all of the following in the narrative portion of its financial disclosure except for one. Which of these pieces of information CANNOT be disclosed?
A. Information relating to mergers and acquisitions
B. Information related to a regulatory enforcement action that currently applies to the bank
C. An excerpt from the latest regulatory examination prepared by the bank’s regulatory agency D. The bank’s future plans for product development
Correct Answer: C Section: (none) Explanation
Explanation/Reference: QUESTION 172
Which of the following sources is the least desirable to use when monitoring a correspondent bank’s capital?
A. A national rating agency’s report on the correspondent bank
B. The correspondent bank’s own call report
C. The correspondent bank’s annual report to shareholders
D. A national newspaper’s story on the correspondent bank’s financial condition
Correct Answer: D Section: (none) Explanation
Explanation/Reference: QUESTION 173
Bank B is a correspondent of Bank A. Which of the following must be included in Bank A’s calculation of credit exposure to Bank B?
A. A loan to Mr. Pierce from Bank A secured by Bank B common stock
B. Bank B’s purchase of U.S. government T-Bills on behalf of Bank A under an overnight repurchase arrangement C. Bank A’s deposit account of $1 million in Bank B
D. A letter of credit issued by Bank B and pledged against the ACME Company’s debt at Bank A
Correct Answer: C Section: (none) Explanation
Explanation/Reference: QUESTION 174
Which of the following is NOT a requirement of Regulation F?
A. Writing and maintaining policies and procedures for managing exposure to correspondent banks B. Monitoring the exposure to correspondent banks on a regular basis
C. Establishing internal limits on exposure to correspondents
D. Providing quarterly reports to the board of directors of compliance audit results
Correct Answer: D Section: (none) Explanation
Explanation/Reference: QUESTION 175
Which of the following loans is clearly NOT subject to the IRS mortgage interest reporting requirement?
A. A loan made to purchase securities, secured by rural acreage
B. A loan made to finance a college education, secured by a piece of commercial real estate C. A loan made to purchase a lot on a lake, secured by a certificate of deposit
D. A loan made to purchase a residence, secured by the dwelling
Correct Answer: C Section: (none) Explanation
Explanation/Reference: QUESTION 176
Which of the following actions subjects a lender to mortgage interest reporting requirements?
A. The lender holds mortgage loans in the course of its trade or business.
B. The lender is a qualified FHA or VA lender.
C. The lender receives at least $500 in interest on a mortgage loan during a calendar year. D. The lender offers unsecured home improvement loans.
Correct Answer: A Section: (none) Explanation
Explanation/Reference: QUESTION 177
If the lender is subject to the mortgage interest reporting requirement, which of the following actions is NOT required?
A. The lender must file an information return with the IRS.
B. The lender must report the amount of interest and points on the information return.
C. The lender must report the loan balance as of December 31 of the year preceding the year the report is filed.
D. The lender must send a statement to the borrower.
Correct Answer: C Section: (none) Explanation
Explanation/Reference: QUESTION 178
Information reports must include which of the following details?
A. Name, address, and TIN of the borrower
B. Purpose of the loan
C. Address of the property securing the mortgage
D. Fair market value of the property at the time of the loan
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 179
Mr. Roberts has three loans at First National Bank: Loan A made to purchase a car, secured by the car; Loan B made to purchase stock, secured by a lake lot; and Loan C made to pay taxes, secured by a rental house he owns. Last year he paid $2,500 in interest on Loan A; $550 in interest on Loan B; and $1,000 in interest on Loan C. How much interest will First National Bank report to the IRS?
A. $4,050 B. $1,000 C. $1,550 D. $2,500
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
QUESTION 180
Mrs. Franklin has two mortgage loans at First National Bank on which she makes monthly payments. On Loan A she made 13 payments last year, mailing the last payment on December 28. It was received the afternoon of January 2 and credited on January 3. The amount of interest paid on Loan A in the first 12 payments was $1,000. There was $155 of interest on the 13th payment. On Loan B, she made 12 payments; each contained interest accrued to the fourth day of the month. The last payment was mailed on December 19 and was received and credited on December 23. The last payment contained interest accrued to January 4. The total interest paid on Loan B was $2,000, of which $100 accrued between January 1 and January 4 of the next year. How much interest must First National Bank report?
A. $1,155 for Loan A and $2,000 for Loan B B. $1,155 for Loan A and $2,100 for Loan B C. $1,000 for Loan A and $2,000 for Loan B D. $1,000 for Loan A and $2,100 for Loan B
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 181
First National Bank sold several of its mortgage loans to individual investors and now services the loans for the individuals. First National Bank collects more than $600 on most of these mortgages and deposits the money into the account of the investors. At the end of each year, First National Bank sends the investors a summary of transactions on the mortgages and a detailed breakdown of the principal and interest payments made. Who is responsible for filing the mortgage interest information returns?
A. The investors, because they own the loans and the money is collected for them
B. The investors, because they have the necessary information from the servicer
C. First National Bank, because it was the first owner of the loans
D. First National Bank, because it collects the interest and has the information necessary to file the information return
Correct Answer: D
Section: (none) Explanation
Explanation/Reference:
QUESTION 182
First National Bank does not have the TINs of several borrowers with mortgage loans. What should the bank do to fulfill the mortgage interest reporting regulations?
A. Mail a one-time request for TINs by certified mail to each borrower who has failed to provide one B. Post a notice in its mortgage lending lobby that TINs are required for mortgage loans
C. Mail a separate request for TINs annually to borrowers who have failed to provide one
D. Include a request for TINs in the annual mailing of the payment coupon book
Correct Answer: D Section: (none) Explanation
Explanation/Reference: QUESTION 183
For a U.S. bank with domestic and foreign locations, which transaction does NOT require an information return to report the amount of interest paid?
A. A loan made to James Roberts, a U.S. resident, payable at the bank’s New York office, to purchase securities secured by the borrower’s home in Mexico
B. A loan made to Robert and Louise LeBlanc, who are resident aliens, payable at the bank’s New York office, secured by a piece of real property located in Canada
C. A loan made to Smith and Withers, a partnership formed for the practice of law, located in the United States, payable at the bank’s New York office, guaranteed by Mr. Smith and Mr. Withers, and secured by the law firm’s office building
D. A loan made by Mrs. West, a U.S. citizen, to purchase a mobile home and the lot on which it will be placed; both the mobile home and lot are located in the United States
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 184
By which date must an interest reporting statement be sent to the borrower’s last known address?
A. January 15 of the year following the year the interest is paid B. January 31 of the year following the year the interest is paid C. February 28 of the year following the year the interest is paid D. March 1 of the year following the year the interest is paid
Correct Answer: B Section: (none) Explanation
Explanation/Reference: QUESTION 185
On foreclosure, which of the following loans is subject to the reporting requirements for foreclosed and abandoned property?
A. A loan made to purchase a family car, secured by the car
B. An unsecured loan made to purchase a computer used in the borrower’s business C. A loan made to purchase a residence, secured by the residence
D. A loan made to purchase a home computer, secured by the computer
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 186
First National Bank has foreclosed on several loans. One of the loans is not subject to the requirement to submit an information return on the foreclosed property. Which loan is most likely NOT covered by the regulations?
A. A loan to Brown & Associates, a local law firm, to purchase furniture, secured by the furniture B. A loan to Mrs. Lynch to purchase stereo equipment for use in her office waiting room
C. A loan to Dr. Stevens to purchase kitchen appliances
D. A loan to Mr. and Mrs. Sanders to purchase a computer for their antique shop
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 187
First National Bank made a loan to Lawrence & Co. for the purpose of purchasing landscape equipment, secured by a storage lot the company owned. The borrower made payments for a year and then defaulted. Three months passed without any communication or payments from the borrower, despite the bank’s efforts to locate the company’s owners. The company appears to have ceased operations. What is the bank’s BEST course of action?
A. Do nothing, because the bank has no actual knowledge of abandonment and has not foreclosed on the property B. Make reasonable inquiries to determine whether the property is abandoned and if so, report it as abandoned
C. Locate the borrower, foreclose on the property, and report the transaction as a foreclosure
D. Report the property as abandoned
Correct Answer: B Section: (none) Explanation
Explanation/Reference: QUESTION 188
Which of the following pieces of information is the bank NOT required to report on Form 1099 for foreclosed and abandoned property?
A. The name, address, and TIN of the borrowers
B. A description of the property
C. The original loan amount
D. Whether the borrower is personally liable for the debt
Correct Answer: C Section: (none) Explanation
Explanation/Reference: QUESTION 189
By what date must the bank send the borrower a statement in connection with an information return on foreclosed or abandoned property?
A. January 15 of the year following the year of the foreclosure or abandonment B. January 31 of the year following the year of the foreclosure or abandonment C. February 28 of the year following the year of the foreclosure or abandonment D. March 1 of the year following the year of the foreclosure or abandonment
Correct Answer: B Section: (none) Explanation
Explanation/Reference: QUESTION 190
Which account is NOT subject to backup withholding?
A. A money market savings account owned by Brenda Wilson B. A time deposit account owned by Bob and Nancy Dawson C. An IRA owned by Max Jones
D. A savings account owned by Karen Hitchings
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 191
Walter Johnson has two accounts at First National Bank. His savings account was opened in 1975, and his money market savings account was opened in 1985.He has never supplied a TIN number to the bank. What must First National Bank do?
A. Withhold 28 percent of the payments on each of the accounts
B. Withhold 28 percent of the payments on each account and annually request a TIN on the savings account C. Annually request a TIN on both accounts
D. Refuse to open future accounts without a TIN
Correct Answer: B
Section: (none) Explanation
Explanation/Reference:
QUESTION 192
On March 1, First National Bank opened three accounts:
1) a savings account for Margaret Nelson, who did not have a TIN but signed a certification that she had applied for one;
2) a money market savings account for Linda Miller, who could not remember her TIN but promised to provide it at the earliest possible date; and
3) a certificate of deposit for John Whiteside, who completed a Form W-9 but provided a TIN with only eight numbers. Ms. Nelson provided her newly acquired TIN to the bank on April 15, Ms. Miller provided her TIN on April 5, and Mr. Whiteside provided his TIN to the bank on March 10. Interest was paid on all of these accounts on March 31, and the bank withheld 28 percent of the interest payments. On April 20 all the payees requested that the withheld interest be refunded. What should the bank do?
A. Refund the withheld interest to all payees
B. Refund to Ms. Nelson and Mr. Whiteside because the interest was erroneously withheld C. Refund only to Mr. Whiteside because the interest was erroneously withheld
D. Refund only to Ms. Nelson because the interest was erroneously withheld
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
QUESTION 193
First National Bank receives a notice from the IRS to begin withholding 28 percent of the interest payments on the money market savings account of Myra Wilcox because of payee underreporting. What is the most proper action for First National Bank to take?
A. Send a notice to Ms. Wilcox within 15 days of the receipt of the IRS notice and begin withholding; stop withholding if Ms. Wilcox can prove to the bank that she is not underreporting
B. Begin withholding and send a notice to Ms. Wilcox within 15 days of beginning the withholding; stop withholding only on written notice from the IRS
C. Begin withholding with the first payment after 30 days and send a notice to Ms. Wilcox at least 15 days before the first payment from which funds are to be withheld; stop withholding only on written notice from the IRS
D. Send notice to Ms. Wilcox within 15 days of the receipt of the IRS notice and begin backup withholding with the first payment following 30 days after the notice; stop withholding only on written notice from the IRS
Correct Answer: B
Section: (none) Explanation
Explanation/Reference: QUESTION 194
On which of the following loans does First Savings Bank NOT have to provide a 1098-E (Student Loan Interest) report?
A. A $10,000 tuition loan made to Bobby Wilcox, a student at the state university, guaranteed by the Department of Education
B. A $35,000 line of credit made to Don and Barbara Cocelli, secured by their home, for the payment of certified school expenses for their twin daughters at an accredited private school
C. A $15,000 loan to Linda Chu to be used for the purpose of paying tuition and fees and purchasing college books, lab equipment, and a computer for use in her education at the local community college
D. A $12,000 loan to Paul and Rhonda Pena and their daughter Jennifer, used to pay her college tuition as well as the tuition at the private high school her sister, Jeanne, attends
Correct Answer: D Section: (none) Explanation
Explanation/Reference: QUESTION 195
Which of the following interest-bearing accounts is EXEMPT from Form 1099 annual information reporting requirements under IRS regulations?
A. Time certificates of deposit
B. Money market deposit accounts
C. Individual retirement accounts
D. Negotiable order of withdrawal accounts
Correct Answer: C
Section: (none) Explanation
Explanation/Reference: QUESTION 196
Which of the following groups of employees should be trained on the detailed use of W-9 forms?
A. Senior management
B. New account officers
C. Auditors and accountants D. Security officers
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
QUESTION 197
A bank has given a customer a merchandise gift with a fair market value of $25.00 for opening a deposit account. Which of the following statements describes the proper reporting status of this gift?
A. If the cost of the gift is under $20.00, it is not reportable to the IRS.
B. The cost of the gift is credited to the customer's account as a bonus, increasing the account balance. C. The fair market value of the gift is reported to the customer on the periodic statement.
D. The fair market value of the gift is added to the interest paid and reported on Form 1099-INT.
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 198
Which of the following relationships does NOT violate Regulation L?
• Relationship A: First National Bank is located in the same city as an affiliate of First Savings and Loan. First National and the affiliate share a board member.
• Relationship B: State Bank and an affiliate of First National Bank are located in the same RMSA but not in the same town. State Bank has assets of $60 million, and the affiliate has assets of $7 million. The two institutions share a board member.
• Relationship C: Savings and Loan Association and Bank Holding Company do not have offices within the same RMS
Bank Holding Company’s assets are in excess of $1.75 billion, and Savings and Loan Association’s assets are in excess of $2.5 billion. These institutions share a board member.
A. Relationship A
B. Relationship B
C. Relationship C
D. All the relationships violate Regulation L
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
QUESTION 199
A current member of the board of directors at First Savings Association (an institution with $150 million in total assets) was a director at First National Bank (an institution with total assets of $200 million) for many years. The two institutions are located in the same town. Before being elected to the board of First Savings, the director retired from the First National board. To honor his years of service with First National, the bank made him a director emeritus for life. He can attend any board meeting but cannot vote. He may speak to matters before the board and receives a director’s fee. In actuality, however, the director never attends board meetings. Does this relationship violate Regulation L?
A. No, because he does not attend meetings.
B. No, because he cannot vote.
C. Yes, because he receives a fee.
D. Yes, because he is really an honorary director.
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 200
Trust Co. and First National Bank are located in the same city and each has assets of over $20 million. The president of First National has been asked to serve as a director of Trust Co. First National has no trust department and no trust operations. Trust Co. operates solely as a trust company. Would this relationship violate
the prohibitions against management official interlocks in Regulation L?
A. Yes, because the institutions are in the same city.
B. No, because the institutions are not both depository institutions. C. No, because the institutions do not compete.
D. Maybe, but it depends on the size of the institutions.
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
A bank is conducting due diligence for a foreign correspondent bank account. Which of the following is NOT required information?
A. The identities of the correspondent bank’s true ownership
B. Information on the government licenses of the correspondent bank
C. Copies of the tax return of the correspondent bank
D. Information on the products and services the correspondent bank offers
Correct Answer: C Section: (none) Explanation
Explanation/Reference: QUESTION 113
Which of the following transactions requires completion of FinCEN Form 104, a CTR?
A. Deposit of checks totaling $12,000 to a checking account B. Cash purchase of a cashier’s check for $7,800
C. Cash withdrawal of $3,000 from a checking account
D. Cashing of a $14,000 check for a customer
Correct Answer: D Section: (none) Explanation
Explanation/Reference: QUESTION 114
On which of the following loans must a bank maintain records under the Bank Secrecy Act? A. All loans exceeding $5,000 and secured by real property
B. All loans exceeding $5,000, but not secured by real property C. All loans exceeding $10,000 and secured by real property
D. All loans exceeding $10,000, but not secured by real property
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 115
An individual comes into the bank and makes a $6,000 cash deposit into a checking account. At the same time, the individual buys a $7,000 cashier’s check with cash. According to the Bank Secrecy Act, what is the bank is required to do?
A. File a SAR for $13,000
B. File a CTR for the $6,000 cash deposit
C. Aggregate the transactions and retain information about the purchase of the cashier’s check
D. Obtain the recordkeeping information for the purchase of the cashier’s check and complete a CTR for the total cash-in transaction of $13,000
Correct Answer: D Section: (none) Explanation
Explanation/Reference: QUESTION 116
Which of the following is NOT considered an acceptable form of identification for an individual when completing a CTR?
A. U.S. passport
B. Long-term deposit account relationship
C. State-issued photo identification (e.g., driver’s license)
D. Photo identification card issued by a local government agency
Correct Answer: B Section: (none) Explanation
Explanation/Reference: QUESTION 117
Which of the following customers may be exempted under Phase II of the Bank Secrecy Act?
A. Government agencies
B. Correspondent banks
C. Payroll customers
D. Businesses whose stocks are traded on a national stock exchange
Correct Answer: C Section: (none) Explanation
Explanation/Reference: QUESTION 118
In which of the following circumstances is it LEAST appropriate for a bank to file a SAR regarding Internet activity?
A. Bank determines that one of its customers is the victim of identity theft
B. Bank becomes aware of identity theft of its domain name (i.e., another entity selects a name similar to the bank’s in order to confuse customers and obtain confidential financial information)
C. Bank discovers that someone has hacked into its data system in order to obtain confidential customer data
D. Bank determines through its transaction-monitoring program that a customer is making electronic transfers between his own checking and savings accounts that are just below the $10,000 reporting level
Correct Answer: D Section: (none) Explanation
Explanation/Reference: QUESTION 119
When completing and filing a SAR, what is the bank NOT required to do?
A. Submit a copy of the supporting documentation with the SAR B. Submit the SAR within 30 days of the initial detection of facts
C. Report the SAR information to the bank’s board of directors
D. Maintain a copy of the SAR and supporting documentation for 5 years
Correct Answer: A Section: (none) Explanation
Explanation/Reference: QUESTION 120
What should a bank’s Bank Secrecy Act compliance program include?
A. All lobby notice requirements
B. The one-year record retention requirements
C. Designation of individuals responsible for day-to-day compliance D. A list of types of loans covered by the Act
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 121
A routine review of account records reveals that suspicious activity involving foreign currency has occurred in the account of one of the bank’s directors. Which of the following actions should be taken FIRST?
A. A SAR should be filed.
B. The bank’s board of directors should discuss the account activity without the affected director being present. C. The bank’s president should meet with the affected director to discuss the account activity.
D. The bank should file a CTR, checking the box that indicates the report is for suspicious activity.
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 122
A compliance officer is constructing a review of a transaction in which M, a deposit account customer, used cash to purchase travelers’ checks in an amount of $4,000. The compliance officer must determine compliance with financial recordkeeping and currency reporting regulations. Which of the following pieces of information must be part of the bank’s records for this transaction?
A. M’s date of birth
B. M’s deposit account number
C. The serial numbers of the travelers’ checks purchased D. The name of the branch where the transaction occurred
Correct Answer: C Section: (none) Explanation
Explanation/Reference: QUESTION 123
When all the required information is NOT provided by a person purchasing a cashier’s check with $8,000 in currency, what should the bank do?
A. Refuse the transaction
B. Complete the transaction and record available information
C. Complete the transaction and file a SAR
D. Complete the transaction and insist that the customer return with the required information
Correct Answer: A Section: (none) Explanation
Explanation/Reference: QUESTION 124
Which of the following is MOST effective in strengthening an anti-money- laundering program involving cash transactions?
A. Review all deposits of $25,000 or more
B. Complete CTR worksheets on all cash transactions of $5,000 or more
C. Complete SAR worksheets on all cash transactions of $5,000 or more D. Monitor cash transactions of less than $10,000 for suspicious patterns
Correct Answer: D Section: (none) Explanation
Explanation/Reference: QUESTION 125
For which of the following is a bank most likely to be in danger of receiving a cease and desist order?
A. Repetition in a BSA examination of a noncritical deficiency reported in a previous BSA examination B. Failure to document AML training to its part-time clerical employees
C. A 2 percent error rate on the bank’s CTRs
D. Failure to file suspicious activity reports
Correct Answer: D Section: (none) Explanation
Explanation/Reference: QUESTION 126
Which of the following countries are currently subject to the Office of Foreign Assets Control Regulations?
A. North Korea B. Jordan
C. Bahrain
D. Russia
Correct Answer: A Section: (none) Explanation
Explanation/Reference: QUESTION 127
What should a bank do when it receives a request from a customer to transfer funds to an individual in Iraq?
A. Conduct the transfer as requested
B. Conduct the transfer if the individual and the financial institution are not on the SDN list C. Block the transfer
D. Conduct the transfer and then notify OFAC immediately
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
QUESTION 128
ACME Bank is a $600 million institution with 15 branches within three counties. Because of its proximity to Mexico, the bank has many foreign national customers and makes many foreign wire transfers for its customers. Currently the bank’s branch managers print the OFAC list of SDNs and place them in strategic places in each branch. The wire transfer department keeps its own copy of the list. The compliance officer has implemented an annual auditing program to check the bank’s compliance with OFAC regulations. The findings of this audit are provided to the bank’s board of directors annually. The bank’s regulatory agency has indicated to management that the bank has a high risk for BSA/AML/OFAC compliance. Of the following actions, which would be the most effective to strengthen the bank’s OFAC compliance?
A. Conduct compliance audits twice a year
B. Purchase and implement interdiction software for the wire transfer area
C. As an internal control procedure, require the BSA officer to check the OFAC Web site daily for any changes to the SDN list D. Routinely provide account transaction information to federal security agencies so suspicious patterns can be detected
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
QUESTION 129
State National Bank is a $250 million community bank. It makes a variety of consumer and commercial loans, regularly transmits funds via wire transfers for its customers, and issues commercial and stand-by letters of credit. Which of the following transactions can State National make without checking the OFAC SDN list and without incurring liability?
A. Send a wire transfer via its correspondent bank in New York for a commercial customer. B. Sell a cashier’s check payable to a third party.
C. Cash an on-us check over-the-counter for a noncustomer.
D. None. The bank can be liable for all.
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 130
FA presents cash to the bank and seeks to wire it to his spouse, RA, in Cub A. The OFAC list identifies RA as a specially designated national. Under OFAC Regulations, what should the bank do?
A. Block the transfer
B. Conduct the transfer as requested and take no further action
C. Conduct the transfer as requested and notify OFAC immediately
D. Conduct the transfer only if the bank determines that Cuba is not a blocked country
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 131
Your institution has identified a transaction by an existing depositor that should be blocked under OFAC requirements. The branch manager contacts you for specific instructions. Before reporting the transaction to OFAC, what should the bank do?
A. Reject the transaction
B. Process the transaction
C. Close the customer’s account
D. Place the funds in an interest-bearing account
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 132
Your bank’s president comes back from an industry conference and tells the compliance officer that she attended a presentation about OFAC. She heard the bank could be fined for not adhering to OFAC requirements. Thus, she has directed that every bank transaction be reviewed for OFAC compliance. What is the most appropriate statement the compliance officer could make to the bank president?
A. The bank is already in compliance because OFAC checks are performed on all new depositors
B. The bank has assessed its OFAC risk and has implemented risk-based OFAC procedures
C. OFAC does not apply because the bank does not conduct business in foreign countries or with foreign nationals D. Banks are usually not fined for OFAC violations unless they conduct transactions with SDNs or blocked countries
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
QUESTION 133
The BSA officer has just been notified by the chief operations officer that, due to a glitch in the bank’s OFAC interdiction software, wires have been regularly transmitted to a bank on the SDN list. Based on the OFAC Enforcement Guidance, what should the BSA Officer do FIRST to attempt to mitigate any penalties?
A. Review the OFAC wire policies and procedures to determine how the errors occurred B. Stop and hold all wires to the bank on the SDN list
C. Investigate the customer who sends these wires
D. Self-report the activity to OFAC
Correct Answer: B
Section: (none) Explanation
Explanation/Reference:
QUESTION 134
Bank A offers safe deposit services in a vault area that contains a door too narrow for wheelchair passage. The bank cannot widen the door because of the vault construction. Therefore, when a customer in a wheelchair needs access to a safe deposit box the customer cannot enter the vault. The bank provides viewing rooms for all safe deposit customers, and one of these rooms has a door wide enough for a disabled customer to enter. Which of the following must the bank do to provide safe deposit box service to wheelchair customers?
A. Remove the old vault and install a new vault to allow wheelchair access
B. Construct an alternative facility in which to store the safe deposit boxes of wheelchair customers
C. Require wheelchair customers to be accompanied by a walking individual to retrieve the safe deposit box for the customer
D. Bring the safe deposit box to the customer and provide an accessible area where the customer may privately have access to the contents
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 135
The mortgage lending department of Bank XYZ received some inquiries from potential applicants who are visually impaired. The bank would like to comply with ADA concerning these potential applicants, but it does not want to spend a significant amount of money. Which of the following statements is true?
A. The bank must have its loan application and disclosures translated into Braille.
B. The bank may have a loan assistant read each loan application and disclosure document to the applicant and assist in completion of the forms. C. The bank may require the applicant to bring a sighted friend or relative to the bank to assist in completing the application.
D. The bank may make a policy not to lend money to blind persons.
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
QUESTION 136
Which of the following activities is permitted under ADA?
A. Issuing a policy against making loans to health care providers who regularly work with infectious patients
B. Prohibiting smoking anywhere in the bank building
C. Providing readers to visually impaired loan applicants for a $15 fee
D. Requiring disabled depositors to use a teller window that is specially constructed for the use of disabled persons
Correct Answer: B Section: (none) Explanation
Explanation/Reference: QUESTION 137
Under the ADA, what can an employer do?
A. Inquire about a disability if the disability is obvious to the interviewer at the time of the job interview
B. Inquire about a disability when offering a job provided the disability is related to the job requirements
C. Refuse to make an accommodation for a disability if 50 persons or fewer are employed
D. Note the disability in the employee’s file so that other managers will be aware of it when interviewing the employee for future position changes
Correct Answer: B Section: (none) Explanation
Explanation/Reference: QUESTION 138
Which of the following employment practices is NOT legal under ADA?
A. Establishing a policy that prohibits hiring alcoholic applicants
B. Establishing a policy that prohibits smoking at any time at work
C. Holding employees who are certified alcoholics to the same performance standards as other employees D. Refusing to hire an employee who currently uses illegal drugs
Correct Answer: A
Section: (none) Explanation
Explanation/Reference:
QUESTION 139
Bob’s wife is HIV-positive due to a blood transfusion during an appendectomy 15 years ago. She is not yet sick, but takes medication to prevent the onset of AIDS. Bob occasionally needs to take time off from work to take her for testing at Johns Hopkins in Baltimore. Because of complaints about Bob’s exposure to this disease, employees have asked HR to limit his contact with them and with customers. The bank has asked Bob not to eat in the lunchroom with the other employees and has placed Bob in a position where he has limited customer contact. Does this company have any potential ADA liability?
A. No. Bob’s exposure to HIV could endanger other employees and customers
B. No. Because the hiring manager does not know that Bob actually has HIV or AIDS, there is no liability
C. Yes. Because the manager has associated Bob with this disease, the “associated with” rule applies
D. Yes. Because the manager has regarded Bob as having a disability, he has been “regarded as” disabled and the ADA applies
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 140
Roger Jameson is the head of the consumer loan department at First National Bank. He is a regular participant in a lending committee of a local finance trade association. The committee meets once a month at a local hotel. After the committee meetings, Roger and several other committee members who are officers at other banks in town go to a hotel restaurant and talk for a couple of hours before leaving. During these informal conversations Roger learned that the other members require the car dealerships in town that sell consumer installment contracts to the banks to refrain from selling them to local savings and loan associations. Roger believes that this is a good idea and would like to implement it at First National. Is there a problem with doing so?
A. No, because interest rates are not involved.
B. No, because this decision would have no effect on the cost to the consumer.
C. Yes, unless there are enough dealerships in town to provide contracts to all of the institutions. D. Yes. Restricting the dealerships is a restraint of trade.
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 141
First National is developing a consumer checking account that can access a line of credit. This is the first time the bank has ever had such a product, although this type of credit facility has been popular with other banks in town. To determine what interest rate to charge on this account, an officer of First National called some of his friends at other local banks offering this type of credit and asked several questions, including the interest rate charged on this type of account and what internal factors the banks use to set the rate. After obtaining this information, First National determines that it could charge approximately 2 percent more than it originally planned. Is there anything wrong with this course of action?
A. Yes. Communicating with competitors for purposes of setting prices is wrong.
B. No. Communication itself is never wrong regardless of the subject matter.
C. Yes. The bank should have disguised its identity in calling its competitors.
D. No. The bank could probably have determined the prices eventually without calling the banks directly.
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 142
Martha Smith of First National Bank is attempting to close a large commercial loan to a manufacturing equipment company. In negotiating the interest rate on the loan Martha states that if the company will move some of its demand accounts to the bank, it could get a lower interest rate. Is this wrong?
A. Yes. It violates the anti-tying provisions.
B. Yes. It is a restraint of trade.
C. No, unless moving the accounts is a condition of the loan.
D. No. The bank may condition the loan on the customer placing a deposit in the bank.
Correct Answer: D Section: (none) Explanation
Explanation/Reference: QUESTION 143
First National Bank owns a data processing company that sells financially related data processing services to various businesses in the community. Daniel Tyler, a
loan officer, is negotiating a loan to a local CPA firm. He would like to make the loan conditional on the CPA firm’s use of the subsidiary data processing firm. May he do so?
A. Yes, because it is not a bank service.
B. Yes, because it is not related to pricing.
C. No. It is an illegal tie-in.
D. No, unless the company was planning to obtain a new data processing service provider anyway.
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 144
Mills Company, Inc., is a manufacturing company with a working capital line of credit from First National Bank. The credit agreement governing the loan states that Mills cannot obtain additional unsecured credit without the approval of the bank. Mills believes that such a clause violates the Bank Holding Company Act’s anti- tying clause. Does it?
A. Yes. It is a restraint of trade.
B. Yes, unless the bank will reasonably allow additional credit at Mills’s request. C. No, since this clause relates to the soundness of the credit
D. No, unless the bank refuses to grant additional credit to Mills itself
Correct Answer: C Section: (none) Explanation
Explanation/Reference: QUESTION 145
Which of the following would NOT be acceptable under the Bank Bribery Act and the relevant guidelines?
A. A luncheon paid for by a bank customer after a transaction is closed
B. A gift of a hunting rifle to a loan officer from a borrower at Christmas
C. The gift of a gold watch to a loan officer from a customer who is the loan NOTES officer’s cousin D. An award of a writing pen and pencil set to a bank officer by a civic organization
Correct Answer: B Section: (none) Explanation
Explanation/Reference: QUESTION 146
Which of the following is NOT a written record the bank should retain in complying with the Bank Bribery Act?
A. A copy of the bank’s internal code of conduct
B. A list of all gifts received by bank officers during the year C. Disclosures of unauthorized gifts
D. A list of all bank officers’ outside business interests
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
QUESTION 147
Harvey Smith is a loan officer at First National Bank. Which of the following of Harvey’s outside business interests may be considered to be a conflict of interest that should be disclosed to the bank?
A. His ownership of 4,000 shares of stock in a local car dealership (the car dealership is not a bank customer) B. His wife’s position as chair of the board of a local bank
C. His attendance at a party hosted by one of his customers where other financial institutions were represented D. His role as honorary chair of a fund drive for a local charitable organization
Correct Answer: B
Section: (none) Explanation
Explanation/Reference:
QUESTION 148
Martin Taylor, a loan officer at First National Bank, is a long-time friend of Bill Evans, a local homebuilder. Bill would like a line of credit at the bank and discusses the potential loan with Martin. During the discussion, Martin expresses his desire to build a house one day and Bill offers to build him one “at cost plus 5 percent.” If Martin accepts Bill’s offer, can he continue to act as his loan officer?
A. No. The value of the gift is too great.
B. Yes, if Martin discloses this fact to the bank.
C. Yes, if Martin does not let the discount on the house affect his decision making process. D. Yes, if the bank’s code of conduct allows such activity.
Correct Answer: A Section: (none) Explanation
Explanation/Reference: QUESTION 149
Which of the following factors would NOT be considered when evaluating whether specific behavior by a banker violates the statute?
A. The social and family ties of the banker
B. The standard for business amenities and entertaining in that particular part of the country C. Whether there was a demonstrable business purpose
D. Whether a business transaction was consummated as a result
Correct Answer: D Section: (none) Explanation
Explanation/Reference: QUESTION 150
When does a gift accepted by a banker clearly violate the Bank Bribery Act?
A. When it is given for personal reasons
B. When it is given with corrupt intent
C. When it is valued at a dollar amount exceeding $50
D. When it is not given in connection with a generally accepted holiday
Correct Answer: B Section: (none) Explanation
Explanation/Reference: QUESTION 151
Which of the following transactions does NOT require prior approval of the Federal Reserve Board?
A. The formation of a bank holding company
B. The acquisition by a bank holding company of a subsidiary
C. The acquisition of 25 percent of voting stock of a bank by another bank, in good faith, in its fiduciary capacity with no power to vote
D. The acquisition of 25 percent of voting stock of a bank by another bank in its fiduciary capacity for the benefit of the acquiring bank’s employees
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 152
First National Bancshares, Inc., a bank holding company, filed an application with its Federal Reserve Bank on March 1 to acquire a subsidiary bank. On March 15 the Federal Reserve Board asked First National for more information. On April 1 the Federal Reserve Bank received the completed application and accepted it. On April 5 the Federal Reserve Bank notified First National of the April 1 acceptance and referred the application to the Federal Reserve Board. Under the normal rules, by what date must the Federal Reserve Board act on the application?
A. June 1 B. April 30 C. June 5 D. July 1
Correct Answer: A Section: (none) Explanation
Explanation/Reference: QUESTION 153
Which of the following activities is NOT a permissible nonbanking activity?
A. Servicing mortgage loans
B. Providing general courier services to the businesses around the bank office C. Providing mortgage loan data processing services to mortgage companies D. Acting as a broker for credit life insurance
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
QUESTION 154
First National Bankshares, Inc., a bank holding company, held substantially all of the voting stock of an equipment manufacturing corporation as collateral for a loan to the owner. On May 15 the borrower defaulted and on September 1, after proper notice was given, the bank foreclosed its security interest on the stock and exercised its rights to vote the stock at appropriate times. On December 31 the bank transferred the stock to a subsidiary corporation, FNB, Inc., to market the stock for sale more effectively. What is the longest time period that FNB, Inc., can possibly hold the stock?
A. Up to two years from September 1 B. Up to five years from September 1 C. Up to two years from December 31 D. Up to five years from December 31
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
QUESTION 155
Which of the following is NOT a factor considered by the Federal Reserve Board when it evaluates an application under Regulation Y?
A. The financial strength of the applicant
B. The management strength of the applicant
C. The current nonbanking activities of the applicant D. The effect of the transaction on competition
Correct Answer: C Section: (none) Explanation
Explanation/Reference: QUESTION 156
Which of the following is NOT a corporate practice required of bank holding companies?
A. Each bank subsidiary must file a notice with the Federal Reserve before offering a new product.
B. Each bank subsidiary must conduct its operations in a safe and sound manner.
C. Each bank subsidiary must be insured by the FDIC.
D. Each bank subsidiary must file a notice with the Federal Reserve before purchasing any of its own securities.
Correct Answer: A Section: (none) Explanation
Explanation/Reference: QUESTION 157
For which of the following business activities must a bank holding company obtain prior approval of the Federal Reserve Board?
A. Operating an auto club service
B. Serving as a safe deposit company
C. Operating as a management consulting firm for financial institutions D. Selling installment loan data processing
Correct Answer: A
Section: (none) Explanation
Explanation/Reference:
QUESTION 158
ACME national bank plans to acquire Smith Brothers insurance agency and make it an operating subsidiary of the bank. ACME is considered a well-managed and adequately capitalized bank. What regulatory-related action must ACME take to obtain the agency?
A. Complete the sale of the agency and notify the OCC within 10 days B. Complete the sale of the agency and notify the OCC within 30 days C. No regulatory notice is required
D. Notify the OCC before completing the sale
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 159
First State Bank, a state nonmember institution, plans to purchase a company that would be a financial subsidiary of the bank. First State will send a notice to the FDIC of its proposed acquisition. Of the following factors, which one would NOT be relevant to the FDIC’s consideration of the bank’s acquisition?
A. First State Bank’s asset size
B. Whether First State Bank is well capitalized
C. First State Bank’s CRA rating
D. The impact of the acquisition on First State Bank’s safety and soundness
Correct Answer: A Section: (none)
Explanation Explanation/Reference:
QUESTION 160
A subsidiary of First National Bank can legally participate in all but one of the following businesses. In which business may the subsidiary NOT legally participate?
A. Selling securities
B. Selling insurance
C. Developing real estate
D. Providing financial planning advice
Correct Answer: C Section: (none) Explanation
Explanation/Reference: QUESTION 161
In which of the following cases would First National Bank be required to give a branch closing notice?
A. Removing its ATM from the local grocery store
B. Opening a deposit-taking facility in a kiosk during a college fair for one weekend C. Moving its central branch across the street
D. Closing its near-town neighborhood branch
Correct Answer: D Section: (none) Explanation
Explanation/Reference: QUESTION 162
In which of the following situations does a bank need to post a branch closing notice? A. A bank closes a branch temporarily because of heavy hurricane damage.
B. A bank closes a branch in a suburban neighborhood because business has not adequately developed there.
C. A bank decides not to exercise its option to purchase a branch it has been temporarily running for the FDIC as a part of a purchase of a failed institution. D. A bank closes a branch and moves it 850 feet down the street.
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
QUESTION 163
Second National has decided to close one of its less profitable neighborhood branches. Which of the following actions is NOT required of the bank under federal law?
A. Publish a notice of the closing in the local newspaper B. Send a notice to its regulatory agency
C. Send notices to the branch customers
D. Post a notice at the branch
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 164
Big Nationwide Bank has decided to close one of its smaller branches in Texas. A community association from the small town where the branch is located is not pleased with the decision because Big Nationwide’s branch is the only financial institution in the small town. The community group complains to the federal agency that regulates Big Nationwide. What must Big Nationwide do in light of this protest against its decision to close the branch?
A. Re-post the notice and wait an additional 90 days
B. Send the federal agency a detailed statistical analysis that is consistent with its branch closing policy and that proves why closing the branch is economically necessary
C. Meet with the community group, explain their reasoning, and help the group find some alternative financial services D. Nothing is required
Correct Answer: D
Section: (none) Explanation
Explanation/Reference: QUESTION 165
In which of the following cases is a branch closing notice required?
A. Bank A decides to stop cashing checks for noncustomers at its neighborhood branch.
B. Bank B and Bank C merge. Each has a branch in the near-town neighborhood. The merged organization is closing the branch that was formerly Bank B and merging it into the branch that was formerly Bank C.
C. Bank D is closing its drive-through facilities in its near-town neighborhood branch, although its regular facility is remaining.
D. Bank E is closing its near-town facility because of its outmoded building and equipment. Bank E has commissioned a study from a local development center to determine if it is feasible to re-open its branch in the future.
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 166
A bank has a stand-alone ATM in a high crime area. Due to concerns for the safety of individuals using the ATM, management decides to close it. According to branch closing policy statements issued by federal regulators, which of the following actions should the bank take?
A. No action is required because an ATM is not, by definition, a branch.
B. Post a notice at the ATM at least 30 days before the intended closing date.
C. Notify the bank's federal regulatory agency at least 90 days before the intended closing date. D. Mail a notice to all customers at least 90 days before the intended closing date.
Correct Answer: A Section: (none) Explanation
Explanation/Reference: QUESTION 167
Which of the following must be included in a branch closing notice to a bank's regulatory agency?
A. Comments from customers who oppose the closing B. Detailed statement of the reasons for the closing
C. Copy of the notice to be sent to affected customers D. Copy of board minutes reflecting the decision to close
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
QUESTION 168
A bank is planning to sell eight branches. The compliance officer participates on a bank committee to oversee the process. What should be the compliance officer’s PRIMARY concern?
A. That the bank's revenues will not be affected severely
B. That the branches are closed in accordance with bank policy
C. That customers of the branches will continue to have access to banking services D. That the bank’s confidential information is returned to the main office
Correct Answer: B Section: (none) Explanation
Explanation/Reference: QUESTION 169
If a bank receives a request for financial disclosure, how may the bank fulfill this request?
A. Provide copies of the call reports covering the current and previous year
B. Provide a copy of its statement of condition covering the year immediately preceding the request C. Provide a copy of its most recent, unaudited financial statement
D. Provide copies of its Uniform Bank Performance Reports for three consecutive years
Correct Answer: A
Section: (none) Explanation
Explanation/Reference: QUESTION 170
Which of the following actions is acceptable under the financial reporting regulations?
A. Attaching a narrative explanation by management of the reasons for a cease and desist order as a part of the annual disclosure B. Attaching a copy of the bank’s last safety and soundness examination to the annual disclosure
C. Including a statement that indicates that the bank’s regulatory agency has reviewed the financial information
D. Using an unaudited financial statement for the past two years as an annual disclosure statement
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 171
A bank may include all of the following in the narrative portion of its financial disclosure except for one. Which of these pieces of information CANNOT be disclosed?
A. Information relating to mergers and acquisitions
B. Information related to a regulatory enforcement action that currently applies to the bank
C. An excerpt from the latest regulatory examination prepared by the bank’s regulatory agency D. The bank’s future plans for product development
Correct Answer: C Section: (none) Explanation
Explanation/Reference: QUESTION 172
Which of the following sources is the least desirable to use when monitoring a correspondent bank’s capital?
A. A national rating agency’s report on the correspondent bank
B. The correspondent bank’s own call report
C. The correspondent bank’s annual report to shareholders
D. A national newspaper’s story on the correspondent bank’s financial condition
Correct Answer: D Section: (none) Explanation
Explanation/Reference: QUESTION 173
Bank B is a correspondent of Bank A. Which of the following must be included in Bank A’s calculation of credit exposure to Bank B?
A. A loan to Mr. Pierce from Bank A secured by Bank B common stock
B. Bank B’s purchase of U.S. government T-Bills on behalf of Bank A under an overnight repurchase arrangement C. Bank A’s deposit account of $1 million in Bank B
D. A letter of credit issued by Bank B and pledged against the ACME Company’s debt at Bank A
Correct Answer: C Section: (none) Explanation
Explanation/Reference: QUESTION 174
Which of the following is NOT a requirement of Regulation F?
A. Writing and maintaining policies and procedures for managing exposure to correspondent banks B. Monitoring the exposure to correspondent banks on a regular basis
C. Establishing internal limits on exposure to correspondents
D. Providing quarterly reports to the board of directors of compliance audit results
Correct Answer: D Section: (none) Explanation
Explanation/Reference: QUESTION 175
Which of the following loans is clearly NOT subject to the IRS mortgage interest reporting requirement?
A. A loan made to purchase securities, secured by rural acreage
B. A loan made to finance a college education, secured by a piece of commercial real estate C. A loan made to purchase a lot on a lake, secured by a certificate of deposit
D. A loan made to purchase a residence, secured by the dwelling
Correct Answer: C Section: (none) Explanation
Explanation/Reference: QUESTION 176
Which of the following actions subjects a lender to mortgage interest reporting requirements?
A. The lender holds mortgage loans in the course of its trade or business.
B. The lender is a qualified FHA or VA lender.
C. The lender receives at least $500 in interest on a mortgage loan during a calendar year. D. The lender offers unsecured home improvement loans.
Correct Answer: A Section: (none) Explanation
Explanation/Reference: QUESTION 177
If the lender is subject to the mortgage interest reporting requirement, which of the following actions is NOT required?
A. The lender must file an information return with the IRS.
B. The lender must report the amount of interest and points on the information return.
C. The lender must report the loan balance as of December 31 of the year preceding the year the report is filed.
D. The lender must send a statement to the borrower.
Correct Answer: C Section: (none) Explanation
Explanation/Reference: QUESTION 178
Information reports must include which of the following details?
A. Name, address, and TIN of the borrower
B. Purpose of the loan
C. Address of the property securing the mortgage
D. Fair market value of the property at the time of the loan
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 179
Mr. Roberts has three loans at First National Bank: Loan A made to purchase a car, secured by the car; Loan B made to purchase stock, secured by a lake lot; and Loan C made to pay taxes, secured by a rental house he owns. Last year he paid $2,500 in interest on Loan A; $550 in interest on Loan B; and $1,000 in interest on Loan C. How much interest will First National Bank report to the IRS?
A. $4,050 B. $1,000 C. $1,550 D. $2,500
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
QUESTION 180
Mrs. Franklin has two mortgage loans at First National Bank on which she makes monthly payments. On Loan A she made 13 payments last year, mailing the last payment on December 28. It was received the afternoon of January 2 and credited on January 3. The amount of interest paid on Loan A in the first 12 payments was $1,000. There was $155 of interest on the 13th payment. On Loan B, she made 12 payments; each contained interest accrued to the fourth day of the month. The last payment was mailed on December 19 and was received and credited on December 23. The last payment contained interest accrued to January 4. The total interest paid on Loan B was $2,000, of which $100 accrued between January 1 and January 4 of the next year. How much interest must First National Bank report?
A. $1,155 for Loan A and $2,000 for Loan B B. $1,155 for Loan A and $2,100 for Loan B C. $1,000 for Loan A and $2,000 for Loan B D. $1,000 for Loan A and $2,100 for Loan B
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 181
First National Bank sold several of its mortgage loans to individual investors and now services the loans for the individuals. First National Bank collects more than $600 on most of these mortgages and deposits the money into the account of the investors. At the end of each year, First National Bank sends the investors a summary of transactions on the mortgages and a detailed breakdown of the principal and interest payments made. Who is responsible for filing the mortgage interest information returns?
A. The investors, because they own the loans and the money is collected for them
B. The investors, because they have the necessary information from the servicer
C. First National Bank, because it was the first owner of the loans
D. First National Bank, because it collects the interest and has the information necessary to file the information return
Correct Answer: D
Section: (none) Explanation
Explanation/Reference:
QUESTION 182
First National Bank does not have the TINs of several borrowers with mortgage loans. What should the bank do to fulfill the mortgage interest reporting regulations?
A. Mail a one-time request for TINs by certified mail to each borrower who has failed to provide one B. Post a notice in its mortgage lending lobby that TINs are required for mortgage loans
C. Mail a separate request for TINs annually to borrowers who have failed to provide one
D. Include a request for TINs in the annual mailing of the payment coupon book
Correct Answer: D Section: (none) Explanation
Explanation/Reference: QUESTION 183
For a U.S. bank with domestic and foreign locations, which transaction does NOT require an information return to report the amount of interest paid?
A. A loan made to James Roberts, a U.S. resident, payable at the bank’s New York office, to purchase securities secured by the borrower’s home in Mexico
B. A loan made to Robert and Louise LeBlanc, who are resident aliens, payable at the bank’s New York office, secured by a piece of real property located in Canada
C. A loan made to Smith and Withers, a partnership formed for the practice of law, located in the United States, payable at the bank’s New York office, guaranteed by Mr. Smith and Mr. Withers, and secured by the law firm’s office building
D. A loan made by Mrs. West, a U.S. citizen, to purchase a mobile home and the lot on which it will be placed; both the mobile home and lot are located in the United States
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 184
By which date must an interest reporting statement be sent to the borrower’s last known address?
A. January 15 of the year following the year the interest is paid B. January 31 of the year following the year the interest is paid C. February 28 of the year following the year the interest is paid D. March 1 of the year following the year the interest is paid
Correct Answer: B Section: (none) Explanation
Explanation/Reference: QUESTION 185
On foreclosure, which of the following loans is subject to the reporting requirements for foreclosed and abandoned property?
A. A loan made to purchase a family car, secured by the car
B. An unsecured loan made to purchase a computer used in the borrower’s business C. A loan made to purchase a residence, secured by the residence
D. A loan made to purchase a home computer, secured by the computer
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 186
First National Bank has foreclosed on several loans. One of the loans is not subject to the requirement to submit an information return on the foreclosed property. Which loan is most likely NOT covered by the regulations?
A. A loan to Brown & Associates, a local law firm, to purchase furniture, secured by the furniture B. A loan to Mrs. Lynch to purchase stereo equipment for use in her office waiting room
C. A loan to Dr. Stevens to purchase kitchen appliances
D. A loan to Mr. and Mrs. Sanders to purchase a computer for their antique shop
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 187
First National Bank made a loan to Lawrence & Co. for the purpose of purchasing landscape equipment, secured by a storage lot the company owned. The borrower made payments for a year and then defaulted. Three months passed without any communication or payments from the borrower, despite the bank’s efforts to locate the company’s owners. The company appears to have ceased operations. What is the bank’s BEST course of action?
A. Do nothing, because the bank has no actual knowledge of abandonment and has not foreclosed on the property B. Make reasonable inquiries to determine whether the property is abandoned and if so, report it as abandoned
C. Locate the borrower, foreclose on the property, and report the transaction as a foreclosure
D. Report the property as abandoned
Correct Answer: B Section: (none) Explanation
Explanation/Reference: QUESTION 188
Which of the following pieces of information is the bank NOT required to report on Form 1099 for foreclosed and abandoned property?
A. The name, address, and TIN of the borrowers
B. A description of the property
C. The original loan amount
D. Whether the borrower is personally liable for the debt
Correct Answer: C Section: (none) Explanation
Explanation/Reference: QUESTION 189
By what date must the bank send the borrower a statement in connection with an information return on foreclosed or abandoned property?
A. January 15 of the year following the year of the foreclosure or abandonment B. January 31 of the year following the year of the foreclosure or abandonment C. February 28 of the year following the year of the foreclosure or abandonment D. March 1 of the year following the year of the foreclosure or abandonment
Correct Answer: B Section: (none) Explanation
Explanation/Reference: QUESTION 190
Which account is NOT subject to backup withholding?
A. A money market savings account owned by Brenda Wilson B. A time deposit account owned by Bob and Nancy Dawson C. An IRA owned by Max Jones
D. A savings account owned by Karen Hitchings
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 191
Walter Johnson has two accounts at First National Bank. His savings account was opened in 1975, and his money market savings account was opened in 1985.He has never supplied a TIN number to the bank. What must First National Bank do?
A. Withhold 28 percent of the payments on each of the accounts
B. Withhold 28 percent of the payments on each account and annually request a TIN on the savings account C. Annually request a TIN on both accounts
D. Refuse to open future accounts without a TIN
Correct Answer: B
Section: (none) Explanation
Explanation/Reference:
QUESTION 192
On March 1, First National Bank opened three accounts:
1) a savings account for Margaret Nelson, who did not have a TIN but signed a certification that she had applied for one;
2) a money market savings account for Linda Miller, who could not remember her TIN but promised to provide it at the earliest possible date; and
3) a certificate of deposit for John Whiteside, who completed a Form W-9 but provided a TIN with only eight numbers. Ms. Nelson provided her newly acquired TIN to the bank on April 15, Ms. Miller provided her TIN on April 5, and Mr. Whiteside provided his TIN to the bank on March 10. Interest was paid on all of these accounts on March 31, and the bank withheld 28 percent of the interest payments. On April 20 all the payees requested that the withheld interest be refunded. What should the bank do?
A. Refund the withheld interest to all payees
B. Refund to Ms. Nelson and Mr. Whiteside because the interest was erroneously withheld C. Refund only to Mr. Whiteside because the interest was erroneously withheld
D. Refund only to Ms. Nelson because the interest was erroneously withheld
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
QUESTION 193
First National Bank receives a notice from the IRS to begin withholding 28 percent of the interest payments on the money market savings account of Myra Wilcox because of payee underreporting. What is the most proper action for First National Bank to take?
A. Send a notice to Ms. Wilcox within 15 days of the receipt of the IRS notice and begin withholding; stop withholding if Ms. Wilcox can prove to the bank that she is not underreporting
B. Begin withholding and send a notice to Ms. Wilcox within 15 days of beginning the withholding; stop withholding only on written notice from the IRS
C. Begin withholding with the first payment after 30 days and send a notice to Ms. Wilcox at least 15 days before the first payment from which funds are to be withheld; stop withholding only on written notice from the IRS
D. Send notice to Ms. Wilcox within 15 days of the receipt of the IRS notice and begin backup withholding with the first payment following 30 days after the notice; stop withholding only on written notice from the IRS
Correct Answer: B
Section: (none) Explanation
Explanation/Reference: QUESTION 194
On which of the following loans does First Savings Bank NOT have to provide a 1098-E (Student Loan Interest) report?
A. A $10,000 tuition loan made to Bobby Wilcox, a student at the state university, guaranteed by the Department of Education
B. A $35,000 line of credit made to Don and Barbara Cocelli, secured by their home, for the payment of certified school expenses for their twin daughters at an accredited private school
C. A $15,000 loan to Linda Chu to be used for the purpose of paying tuition and fees and purchasing college books, lab equipment, and a computer for use in her education at the local community college
D. A $12,000 loan to Paul and Rhonda Pena and their daughter Jennifer, used to pay her college tuition as well as the tuition at the private high school her sister, Jeanne, attends
Correct Answer: D Section: (none) Explanation
Explanation/Reference: QUESTION 195
Which of the following interest-bearing accounts is EXEMPT from Form 1099 annual information reporting requirements under IRS regulations?
A. Time certificates of deposit
B. Money market deposit accounts
C. Individual retirement accounts
D. Negotiable order of withdrawal accounts
Correct Answer: C
Section: (none) Explanation
Explanation/Reference: QUESTION 196
Which of the following groups of employees should be trained on the detailed use of W-9 forms?
A. Senior management
B. New account officers
C. Auditors and accountants D. Security officers
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
QUESTION 197
A bank has given a customer a merchandise gift with a fair market value of $25.00 for opening a deposit account. Which of the following statements describes the proper reporting status of this gift?
A. If the cost of the gift is under $20.00, it is not reportable to the IRS.
B. The cost of the gift is credited to the customer's account as a bonus, increasing the account balance. C. The fair market value of the gift is reported to the customer on the periodic statement.
D. The fair market value of the gift is added to the interest paid and reported on Form 1099-INT.
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 198
Which of the following relationships does NOT violate Regulation L?
• Relationship A: First National Bank is located in the same city as an affiliate of First Savings and Loan. First National and the affiliate share a board member.
• Relationship B: State Bank and an affiliate of First National Bank are located in the same RMSA but not in the same town. State Bank has assets of $60 million, and the affiliate has assets of $7 million. The two institutions share a board member.
• Relationship C: Savings and Loan Association and Bank Holding Company do not have offices within the same RMS
Bank Holding Company’s assets are in excess of $1.75 billion, and Savings and Loan Association’s assets are in excess of $2.5 billion. These institutions share a board member.
A. Relationship A
B. Relationship B
C. Relationship C
D. All the relationships violate Regulation L
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
QUESTION 199
A current member of the board of directors at First Savings Association (an institution with $150 million in total assets) was a director at First National Bank (an institution with total assets of $200 million) for many years. The two institutions are located in the same town. Before being elected to the board of First Savings, the director retired from the First National board. To honor his years of service with First National, the bank made him a director emeritus for life. He can attend any board meeting but cannot vote. He may speak to matters before the board and receives a director’s fee. In actuality, however, the director never attends board meetings. Does this relationship violate Regulation L?
A. No, because he does not attend meetings.
B. No, because he cannot vote.
C. Yes, because he receives a fee.
D. Yes, because he is really an honorary director.
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 200
Trust Co. and First National Bank are located in the same city and each has assets of over $20 million. The president of First National has been asked to serve as a director of Trust Co. First National has no trust department and no trust operations. Trust Co. operates solely as a trust company. Would this relationship violate
the prohibitions against management official interlocks in Regulation L?
A. Yes, because the institutions are in the same city.
B. No, because the institutions are not both depository institutions. C. No, because the institutions do not compete.
D. Maybe, but it depends on the size of the institutions.
Correct Answer: A Section: (none) Explanation
Explanation/Reference: