Question

A national bank may make a loan to an account and take as security therefor assets of that account:

a. only if such transaction is specifically required by the terms of the governing instrument.
b. only if authorized by order of a court of competent jurisdiction.
c. if such transaction is fair to such account and is not prohibited by applicable law.
d. only if such transaction is approved by the appropriate regulatory authority.

Answer 1

A national bank may make a loan and take assets as security provided the transaction is fair and not prohibited by law. Financial institutions must balance legality and fairness while managing assets like bonds and loans to maintain their financial health. Hence, option (c) is correct.

Step-by-step explanation:

When a national bank decides to make a loan, it has a few security options to ensure the loan is protect. One such security is taking assets from the account to which it is lending as collateral. In addressing what conditions a national bank must adhere to when making a loan and taking assets as security, the correct option is c. if such transaction is fair to such account and is not prohibited by applicable law.

It's important to understand that banks must operate within legal requirements and ensure fairness in their transactions. Assets such as bonds, which are low-risk and provide a stream of payments, are commonly held by banks alongside loans and contribute significantly to a bank's assets. Bonds can be issued by various entities, including the U.S. government, local governments, private companies, and nonprofit organizations. These financial mechanisms are essential to a bank's ability to generate income and ensure a secure financial footing.