Regulation U requires borrowers to execute a Form FR U-1 (which must be “signed and accepted by a duly authorized officer of the bank acting in good faith”) for any loan exceeding $100,000 that is secured directly or indirectly by margin stock. Consequently, if the existing loan is less than $100,000, your customer would not be required to execute a Form FR U-1. 

Additionally, if the purpose of the loan is not to buy or carry margin stock, the other provisions of Regulation U would not be applicable to the loan.

For resources related to our guidance, please see:

• Regulation U, 12 CFR 221.3(c)(1)(i) (“Purpose Statement—(1) General Rule— (i) Banks. Except for credit extended under paragraph (c)(2) of this section, whenever a bank extends credit secured directly or indirectly by any margin stock, in an amount exceeding $100,000, the bank shall require its customer to execute Form FR U-1 (OMB No. 7100-0115), which shall be signed and accepted by a duly authorized officer of the bank acting in good faith.”)

• Regulation U, 12 CFR 221.3(c)(2)(i) (“Purpose statement for revolving-credit or multiple-draw agreements or financing of securities purchases on a payment-against-delivery basis—(i) Banks. If a bank extends credit, secured directly or indirectly by any margin stock, in an amount exceeding $100,000, under a revolving-credit or other multiple-draw agreement, Form FR U-1 must be executed at the time the credit arrangement is originally established and must be amended as described in paragraph (c)(2)(iv) of this section for each disbursement if all of the collateral for the agreement is not pledged at the time the agreement is originally established.”)

• Federal Reserve, Statement of Purpose for an Extension of Credit Secured by Margin Stock — FR U-1 (“1. This form must be completed when a bank extends credit in excess of $100,000 secured directly or indirectly, in whole or in part, by any margin stock. 2. The term ‘margin stock’ is defined in Regulation U (12 C.F.R. § 221) and includes, principally: (1) stocks that are registered on a national securities exchange or any over-the-counter security designated for trading in the National Market System; (2) debt securities (bonds) that are convertible into margin stock; and (3) shares of most mutual funds.”)

• Regulation U, 12 CFR 221.1(b)(1) (“This part imposes credit restrictions upon persons other than brokers or dealers (hereinafter lenders) that extend credit for the purpose of buying or carrying margin stock if the credit is secured directly or indirectly by margin stock. Lenders include ‘banks’ (as defined in § 221.2) and other persons who are required to register with the Board under § 221.3(b). Lenders may not extend more than the maximum loan value of the collateral securing such credit, as set by the Board in § 221.7 (the Supplement).”)