A national bank may make a loan to an affiliated mortgage company that is 100 percent owned by the same bank holding company, if the aggregate amount of all covered transactions of the national bank and its subsidiaries does not exceed a certain percentage of capital and surplus of the national bank. What is that percentage?
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A. B. C. D.C
The percentage limit for covered transactions between a national bank and its subsidiaries is set by the Community Reinvestment Act (CRA) and its implementing regulation, Regulation O.
The term "covered transaction" refers to any extension of credit, lease, or sale of property or services between a bank and its affiliates. The purpose of the CRA is to encourage banks to meet the credit needs of their communities, including low- and moderate-income neighborhoods, consistent with safe and sound banking practices.
Under Regulation O, a national bank may make a covered transaction with an affiliate, such as an affiliated mortgage company that is 100 percent owned by the same bank holding company, as long as the aggregate amount of all covered transactions does not exceed 10 percent of the bank's capital and surplus.
Therefore, the correct answer to the question is A. 10 percent.
It's important to note that exceeding the 10 percent limit would not necessarily be a violation of the law, but it would trigger additional reporting and compliance requirements under the CRA and Regulation O. Also, banks should ensure that the terms and conditions of the covered transactions are consistent with safe and sound banking practices and market terms that would be offered to unaffiliated parties.