Question

The Federal Reserve may prevent the formation of a financial holding company if one of its insured depository institution subsidiaries:

a. received an unsatisfactory in its most recent Community Reinvestment Act exam.
b. has branches across state lines.
c. is part of a bank holding company.
d. makes subprime loans.
e. is well capitalized.

Answer 1

The Federal Reserve may prevent the formation of a financial holding company if its insured depository institution subsidiary received an unsatisfactory rating in the Community Reinvestment Act exam.

Step-by-step explanation:

The Federal Reserve may prevent the formation of a financial holding company if one of its insured depository institution subsidiaries received an unsatisfactory in its most recent Community Reinvestment Act exam.

Receiving an unsatisfactory rating in the Community Reinvestment Act exam indicates that the bank is not adequately meeting the credit needs of the communities it serves. The Federal Reserve may view this as a red flag and could prevent the formation of a financial holding company due to concerns about the bank's commitment to community development and fair lending practices.

In contrast, having branches across state lines, being part of a bank holding company, making subprime loans, or being well capitalized would not necessarily prevent the formation of a financial holding company.