What must a bank do if it has a defaulted fixed income asset in its common trust fund?

When a bank has a defaulted fixed income asset in its common trust fund, it must seek to manage the situation effectively while adhering to regulatory guidelines. The correct choice reflects the need for the bank to obtain board approval to proceed with the acquisition of the defaulted asset.

The rationale behind this process involves maintaining governance and oversight in financial decision-making. Board approval ensures that there is a collective agreement and formal acknowledgment of the implications associated with acquiring a defaulted asset, which may involve risks and financial considerations impacting the fund and its participants.

Acquiring the defaulted asset can be a strategic decision aimed at stabilizing the common trust fund or retaining some potential value from the investment. However, doing so without appropriate authorization can lead to issues of accountability and mismanagement, which is why board approval is essential in this scenario. This procedure helps in safeguarding the interests of all stakeholders involved in the common trust fund, thus ensuring that financial decisions align with overarching fiduciary duties and regulatory standards.