Question

A non-deposit trust company subsidiary of a bank holding company had $106 million in trust assets as of Dec. 31 of last year, but total assets have dropped to $89 million as of the date of examination. Which of the following reasons best describes why a component rating for earnings would or would not be assigned under the UITRE (MOECA) Rating System and the Federal Reserve's Implementing Guidelines?

a. A rating would be assigned because it is required for all non-deposit trust companies.
b. A rating would be assigned because trust assets were over $100 million as of the last official reporting date (Dec. 31 call report)
c. Although not required, the examiner would probably choose to assign an earnings rating since total assets are close to $100 million.
d. The examiner is not allowed to assign a rating for earnings.

Answer 1

The non-deposit trust company subsidiary would be assigned an earnings rating because its trust assets exceeded $100 million on the last reporting date. In banking, not all assets are physically held at the bank; they include loans and investments. The correct option is b.

Step-by-step explanation:

A component rating for earnings would indeed be assigned to the non-deposit trust company subsidiary of a bank holding company under the UITRE (MOECA) Rating System and the Federal Reserve's Implementing Guidelines.

The most accurate reason is option b: A rating would be assigned because trust assets were over $100 million as of the last official reporting date (Dec. 31 call report). According to regulatory standards, this would necessitate a review and assignment of a rating for earnings.

The money listed under assets on a bank balance sheet may not actually be in the bank because these assets include loans made to customers and investments, which means that money is distributed across various borrowers and securities rather than physically present in the bank's vaults or at the Federal Reserve Bank.

When buying loans in the secondary market, you would be willing to pay more for a given loan if: The borrower is a firm that has just declared a high level of profits, as it indicates a lower risk of default. The correct option is b.