CRB cheat sheet

The Basel Committee on Banking Supervision (BCBS) issues standards (Basel III/IV) that are not self-executing; national authorities implement them through statutes and rules, creating cross-border differences in calibration and scope.

In the United States, the Federal Reserve supervises bank holding companies and state member banks; the OCC supervises national banks and federal savings associations; the FDIC supervises state nonmember banks and administers deposit insurance.

The Dodd-Frank Act (2010) created the Consumer Financial Protection Bureau (CFPB), established enhanced prudential standards for large bank holding companies (≥$50 billion in assets, later recalibrated by S.2155), and introduced the Volcker Rule restricting proprietary trading.

The CAMELS rating system evaluates Capital adequacy, Asset quality, Management, Earnings, Liquidity, and Sensitivity to market risk; composite ratings of 1 (best) through 5 (worst) drive supervisory attention and enforcement escalation.

Prompt corrective action (PCA) under 12 U.S.C. § 1831o ties mandatory supervisory actions to capital categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, based on leverage and risk-based ratios.

The Basel Committee's Core Principles for Effective Banking Supervision (2012) set 29 principles covering the supervisor's powers, prudential regulation, and supervisory techniques; the IMF/World Bank use them in Financial Sector Assessment Programs.

Supervisory colleges are formal arrangements among home and host supervisors of a cross-border banking group to share information and coordinate examinations; they do not replace national legal authority.

The Basel III liquidity standards-Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR)-are implemented in the U.S. by the federal banking agencies; the LCR applies to large, internationally active banking organizations.

Common Equity Tier 1 (CET1) capital primarily comprises common stock and retained earnings less regulatory deductions (e.g., goodwill, intangibles, deferred tax assets above thresholds); it is the highest-quality loss-absorbing capital.

Basel III minimum ratios: CET1 ≥ 4.5% of risk-weighted assets (RWA), Tier 1 ≥ 6%, Total capital ≥ 8%; the capital conservation buffer adds 2.5% CET1, and the G-SIB surcharge adds up to 3.5% for global systemically important banks.

The leverage ratio is Tier 1 capital divided by total exposure (on- and off-balance-sheet), with a Basel minimum of 3%; the U.S. enhanced supplementary leverage ratio (eSLR) applies stricter standards to the largest banks.

Risk-weighted assets under the standardized approach use supervisory risk weights by exposure class (e.g., sovereigns, corporates, retail, residential mortgages); the internal ratings-based (IRB) approach allows banks to model probability of default (PD), loss given default (LGD), and exposure at default (EAD).

The output floor under Basel III final reforms (sometimes called Basel IV) limits the reduction in RWA that a bank can achieve from internal models relative to the standardized approach-set at 72.5% of standardized RWA.

The countercyclical capital buffer (CCyB) is an extension of the capital conservation buffer, set by national authorities between 0% and 2.5% of RWA, calibrated to credit-to-GDP gaps and other indicators of systemic risk.

Total Loss-Absorbing Capacity (TLAC) applies to G-SIBs, requiring minimum loss-absorbing and recapitalization resources; in the U.S., the Federal Reserve implements TLAC through rules for covered bank holding companies.

The U.S. capital rule (Regulation Q, 12 CFR Part 217) implements Basel III for large banks and includes the stress capital buffer (SCB), which integrates supervisory stress test results into the capital conservation buffer requirement.

The five Cs of credit-Character, Capacity, Capital, Collateral, and Conditions-are a traditional framework for assessing borrower creditworthiness; capacity (cash flow) and character (repayment history) are typically weighted most heavily.

Loan-to-value (LTV) ratio = loan amount ÷ appraised value of collateral; higher LTV indicates greater loss severity risk. Combined LTV (CLTV) includes all liens on the property.

Debt service coverage ratio (DSCR) = net operating income ÷ total debt service; a DSCR below 1.0 means the borrower cannot cover debt service from operations, signaling elevated default risk.

The Interagency Guidance on High LTV Residential Real Estate Transactions and the 2013 Ability-to-Repay/Qualified Mortgage (ATR/QM) rule under Regulation Z require creditors to make a reasonable, good-faith determination of a consumer's ability to repay.

Concentration risk limits (single-borrower, single-sector, and geographic) are typically set by internal credit policy and monitored by the board; regulators examine compliance with legal lending limits (e.g., loans to one borrower ≤ 15% of capital and surplus under 12 CFR 32 for national banks).

Credit risk mitigation techniques include collateral, guarantees, credit derivatives, and netting; under Basel, eligible collateral and guarantees can reduce risk-weighted assets if they meet operational and legal requirements.

Problem loan classification categories in U.S. supervision: Special Mention, Substandard, Doubtful, and Loss; Substandard assets are inadequately protected by the borrower's capacity or collateral, and Loss assets are considered uncollectible.

The Current Expected Credit Losses (CECL) accounting standard (ASC 326) requires banks to estimate lifetime expected credit losses at origination, replacing the incurred-loss model; it affects allowance for credit losses (ACL) and capital.

The Bank Secrecy Act (BSA) requires financial institutions to file Currency Transaction Reports (CTRs) for cash transactions over $10,000 and Suspicious Activity Reports (SARs) for suspicious transactions of $5,000 or more (thresholds vary by institution type).

The USA PATRIOT Act Section 326 requires customer identification programs (CIP); Section 312 requires enhanced due diligence for correspondent accounts for foreign financial institutions; Section 313 prohibits such accounts for shell banks.

A risk-based AML program must include four pillars: internal controls, customer due diligence (CDD), ongoing monitoring, and a designated compliance officer with independent testing (the fifth pillar under the U.S. rule).

The Financial Action Task Force (FATF) 40 Recommendations set the international AML/CFT standard; jurisdictions are assessed through mutual evaluations, and high-risk jurisdictions are placed on the FATF grey or black lists.

The Office of Foreign Assets Control (OFAC) administers economic sanctions; U.S. persons must block or reject transactions involving Specially Designated Nationals (SDNs) and report blocked property within 10 business days.

Beneficial ownership: the CDD rule (effective 2018) requires covered financial institutions to identify and verify beneficial owners owning 25% or more of a legal entity customer, plus one individual with significant control.

Money laundering stages: placement (introducing illicit funds into the financial system), layering (obscuring the source through complex transactions), and integration (reintroducing funds as legitimate assets).

Suspicious Activity Report (SAR) confidentiality: filing institutions may not notify the subject of the SAR; safe harbor under 31 U.S.C. § 5318(g)(3) protects institutions from liability for good-faith reporting.

The Equal Credit Opportunity Act (ECOA) and Regulation B prohibit discrimination in credit on the basis of race, color, religion, national origin, sex, marital status, age, receipt of public assistance, or good-faith exercise of rights under the Consumer Credit Protection Act.

The Fair Housing Act (FHA) prohibits discrimination in residential real estate-related transactions based on race, color, religion, sex, disability, familial status, or national origin; HUD enforces the FHA.

Disparate impact theory: a facially neutral policy that has a disproportionately adverse effect on a protected class may violate fair lending laws unless justified by business necessity and no less discriminatory alternative exists.

The Home Mortgage Disclosure Act (HMDA), implemented by Regulation C, requires covered lenders to collect and report loan-level data, including race, ethnicity, sex, and pricing, used by regulators to detect redlining and disparate treatment.

The Community Reinvestment Act (CRA) requires banks to meet the credit needs of their entire assessment areas, including low- and moderate-income neighborhoods; performance is evaluated under lending, investment, and service tests.

The Truth in Lending Act (TILA) and Regulation Z require disclosure of annual percentage rate (APR), finance charges, and total payments; the Ability-to-Repay/Qualified Mortgage rule sets underwriting standards for residential mortgages.

The Real Estate Settlement Procedures Act (RESPA) prohibits kickbacks and unearned fees in settlement services and requires a good-faith estimate of closing costs and a HUD-1/Closing Disclosure.

Unfair, Deceptive, or Abusive Acts or Practices (UDAAP) under Dodd-Frank Section 1031 give the CFPB enforcement authority; abusive practices include materially interfering with a consumer's ability to understand a product or taking unreasonable advantage of a consumer.

Liquidity Coverage Ratio (LCR) = high-quality liquid assets (HQLA) ÷ total net cash outflows over a 30-day stress period; minimum requirement is 100% for large, internationally active banks.

Net Stable Funding Ratio (NSFR) = available stable funding (ASF) ÷ required stable funding (RSF); minimum 100%, designed to promote resilience over a one-year horizon.

Interest rate risk in the banking book (IRRBB) is measured through repricing gap analysis, duration gap, and economic value of equity (EVE) sensitivity; Basel standards require banks to manage and supervisors to evaluate IRRBB.

Value at Risk (VaR) estimates the maximum loss over a given horizon at a specified confidence level (e.g., 99% one-day VaR); limitations include non-normality, tail risk, and model risk.

Expected Shortfall (ES) measures the average loss beyond the VaR threshold; Basel's Fundamental Review of the Trading Book (FRTB) replaces VaR with ES at 97.5% confidence.

Market risk capital under the standardized approach uses sensitivity-based methods for interest rate, credit spread, equity, FX, and commodity risk; the internal models approach requires supervisory approval and backtesting.

Stress testing for liquidity (e.g., Fed's Comprehensive Liquidity Analysis and Review, CLAR) evaluates a bank's ability to survive idiosyncratic and market-wide liquidity shocks.

The Basel III liquidity standards include the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR); U.S. implementation is in Regulation WW (12 CFR Part 249).

The board of directors is responsible for approving the bank's risk appetite statement, capital plan, and key policies; it must have independent directors and an audit committee composed entirely of independent directors (SEC and exchange listing standards).

The three lines of defense model: first line (business units own and manage risk), second line (risk management and compliance provide oversight), third line (internal audit provides independent assurance).

The Sarbanes-Oxley Act (SOX) Section 404 requires management to assess and auditors to attest to the effectiveness of internal control over financial reporting (ICFR) for accelerated filers.

The COSO Internal Control-Integrated Framework (2013) defines five components: control environment, risk assessment, control activities, information and communication, and monitoring activities.

Tone at the top: senior management and the board set the ethical culture; regulators examine compensation structures for incentives that encourage excessive risk-taking (e.g., the Interagency Guidance on Sound Incentive Compensation Policies).

Whistleblower protections: SOX Section 806 prohibits retaliation against employees who report suspected fraud; the SEC whistleblower program provides awards for original information leading to successful enforcement actions.

The Foreign Corrupt Practices Act (FCPA) prohibits bribery of foreign officials and requires accurate books and records and adequate internal accounting controls for issuers.

Conflict of interest policies must address lending to insiders (Regulation O), transactions with affiliates (Regulation W), and directors' and officers' outside business interests.

Call Reports (FFIEC 031/041) are quarterly financial reports filed by banks; they include balance sheet, income statement, and schedule details used by regulators for off-site monitoring.

The Federal Financial Institutions Examination Council (FFIEC) coordinates uniform reporting and examination standards across the federal banking agencies.

The Uniform Financial Institutions Rating System (UFIRS) assigns CAMELS ratings; composite ratings of 3, 4, or 5 trigger progressively stronger supervisory action, including possible enforcement actions.

Enforcement tools include informal actions (board resolutions, commitment letters), formal actions (cease-and-desist orders, consent orders, civil money penalties), and prompt corrective action directives.

The Bank Secrecy Act/Anti-Money Laundering examination manual (FFIEC) provides risk-based examination procedures; deficiencies can result in enforcement actions and reputational harm.

The Volcker Rule (Section 619 of Dodd-Frank) restricts proprietary trading and certain relationships with hedge funds and private equity funds; compliance programs are required for banks above a threshold.

The Basel Committee's Revised Pillar 3 disclosure requirements mandate public disclosure of capital, risk-weighted assets, and liquidity metrics to promote market discipline.

The Federal Reserve's Comprehensive Capital Analysis and Review (CCAR) and Dodd-Frank Act Stress Test (DFAST) require large banks to demonstrate capital adequacy under stress; failure can lead to restrictions on capital distributions.