PART A · QUESTION 1
A bank pays 3% on deposits and lends them out at 6%. Its running costs are 1.5% of its loans, and it expects to lose 0.3% of them a year.
// EXAM HALL24 QUESTIONS · 30 MINUTES
Bank Legal Counsel Practice Test
How a bank earns, one launch from legal's desk, a loan file that is not what the banker says, and the calls in-house counsel gets.
BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED
// THE SHORT ANSWER
A bank legal counsel practice test asks whether you can advise a business under time pressure, and what you do when a file is not what the banker says it is. This paper has four parts: how a bank earns and why it is regulated; one product launch from legal's desk; one loan file with problems of priority, authority and guarantees, set on an exhibit; and calls on privilege, legal holds and who your client is. It tests judgement, and not the law of any one country. Every question is original, and none comes from any bank's test. Sit it against a thirty-minute clock, or take it as practice.
BASIS Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.
// HOW TO SIT IT
Answer below as practice, and each read opens as you go. Or sit it as a test: 30 minutes, with every read held back until you finish.
PART A
The business of a bank
What you are joining, whichever seat you sit in.
PART A · QUESTION 2
A bank has US$100 of assets and US$8 of capital. A retailer with the same assets might have US$40 of capital.
What does a 5% fall in the value of its assets do to the bank's capital?
PART A · QUESTION 3
A friend asks why a bank has so many rules compared with a supermarket. Both have customers, suppliers and shareholders.
What is the best short answer?
PART A · QUESTION 4
Two loans earn the same margin. One is a company loan that needs three times the capital of the other, a well-secured home loan.
Which earns the bank more on its capital?
PART A · QUESTION 5
A bank's loans reprice every five years on average; its deposits reprice within one. Rates rise by one percentage point tomorrow.
What happens to its net interest income next year?
PART A · QUESTION 6
A bank's deposits have been steady for years. This month, after a rival's failure made the news, online withdrawals doubled in two days.
Signal or noise?
PART B
The launch
The launch brief every function in the bank sees. These are the parts that land on legal's desk.
EXHIBIT M · THE LAUNCH BRIEF
A retail bank plans a home loan offer. This brief has reached your desk, whichever seat you sit in. It launches on Friday week.
| Area | What the brief says |
|---|---|
| Offer | US$3,000 cashback on new home loans over US$300,000, at 5.49% fixed for the first year. |
| Advert | Headline: 'The lowest home loan rate in town. Guaranteed approval in 24 hours.' Below it, 5.49% in large type. On the website only, in small print: after year one the rate reverts to 7.29%. |
| Terms | The whole cashback must be repaid if the loan ends within three years, for any reason. |
| Sales | Bankers earn US$150 for each loan written. The scheme has no measure of file quality or complaints. |
| Supplier | A call centre abroad will take enquiries and hold 400,000 customer records. Its price is 18% below the next bid. The contract runs five years, renews itself, and gives the bank no right to leave. |
PART B · QUESTION 7
You are in legal. Under Exhibit M's terms the whole cashback comes back if the loan ends within three years, on any ground, including a sale forced by redundancy or divorce.
What do you advise?
PART B · QUESTION 8
Exhibit M launches on Friday week. Today the business asks for your legal sign-off 'by tomorrow', and says the terms were drafted from last year's offer.
What do you do?
PART B · QUESTION 9
In Exhibit M, four teams have concerns: marketing's claim, legal's term, the incentive and the supplier. The launch is a week off, and the product head says: 'Nobody has said no.'
What should happen?
PART C
The loan file
One file, nine questions. Read what it shows, not what the banker says it shows.
EXHIBIT R · THE LOAN FILE
A bank's file on a US$6m loan to a property developer. The banker wants the first drawdown on Friday.
| Item | What the file shows |
|---|---|
| Facility | Signed by both sides. Clause 14 lets the bank stop lending on any event it 'considers material'. |
| Mortgage | Over a site valued at US$9m. Signed, not registered. The last title search is nine days old. |
| Approval | The company's approval is signed by one director. Its constitution requires two. |
| Guarantee | From the director and the director's spouse, who works in a different field. No independent legal advice is on file. |
| Second lender | A mezzanine lender will put in US$1.5m, and has sent a draft intercreditor agreement. |
| Banker | 'All conditions met, except a couple of bits.' |
PART C · QUESTION 10
In Exhibit R, the mortgage is signed but not registered, and the last title search is nine days old.
What must happen before the money goes out?
PART C · QUESTION 11
In Exhibit R, the company's approval is signed by one director, and its constitution requires two. The banker says: 'It is a two-person company. It is only paperwork.'
What is the risk?
PART C · QUESTION 12
Exhibit R's guarantee comes from the director and the director's spouse, who works in a different field and has no independent legal advice on file.
What do you ask for?
PART C · QUESTION 13
Six months after first drawdown in Exhibit R, sales have slowed. The banker wants to rely on clause 14 and stop funding: 'It says any event we consider material.'
What do you advise?
PART C · QUESTION 14
Exhibit R's mezzanine lender has drafted an intercreditor agreement that lets it be paid ahead of the bank on default.
What do you do?
PART C · QUESTION 15
In Exhibit R, the banker emails: 'All conditions met, except a couple of bits. Can you just confirm we are good?'
How do you answer?
PART C · QUESTION 16
Exhibit R's site might fetch 70% of its value in a forced sale. Suppose the mezzanine lender's US$1.5m does rank ahead of the bank's US$6m.
What does the bank recover?
PART C · QUESTION 17
After a default on Exhibit R's loan, the banker forwards your legal advice to the developer's accountant, to 'show them how serious this is'.
What is the problem?
PART C · QUESTION 18
On Thursday, Exhibit R's developer asks that the loan go to a new company it has just formed, 'for tax reasons'.
What do you say?
PART D
The calls
Regulators, privilege, and people who want you to keep a secret.
PART D · QUESTION 19
You are in-house counsel. A loan's security over a property was signed correctly but not registered. The banker says: 'We have the signed document. We are covered.'
What do you tell them?
PART D · QUESTION 20
The business asks if a new product is allowed. The rules are new, there is no case law, and your honest view as counsel is 'probably yes'.
How do you answer?
PART D · QUESTION 21
A regulator's letter asks for every document on a product. A manager says: 'Have a look first, and leave out the unhelpful emails.'
What do you do?
PART D · QUESTION 22
A colleague copies you into a long email chain about a client problem, and writes: 'Copying legal so that this is privileged.'
What do you tell them?
PART D · QUESTION 23
A junior banker tells you that a manager has been backdating credit approvals. 'You are a lawyer, so this stays between us.'
What do you say?
PART D · QUESTION 24
New lending rules take effect in six months. The product head asks: 'What is the minimum we need to do?'
How do you answer?
0 OF 24 ANSWERED · 0 WITH THE SENIOR READ · 0 STANDS UP · 0 OFF THE LINE
// THE REST OF THE ROUND
Every question here is original; none is any bank's real test. Written for: Legal counsel.
- Legal counsel: the interview questions, against a two-minute clock.
- Situational judgement, for any seat.
- The assessment centre: a whole case in forty-five minutes.
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