Topic: Regulation U
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We would like to use a stock brokerage account as collateral for an existing loan. Does Regulation U require that we make a filing or keep special records? If so, are there any exceptions to this rule? For example, is there an exception if the loan is under a certain amount?
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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…
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Is there any law or regulation that would prevent trust preferred stock from being used as collateral for a consumer loan?
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We are unaware of any express prohibition against using trust preferred stock as collateral for a loan, provided that the trust preferred stock has not been issued by the lending bank or its affiliate. Trust preferred stock is a security, and we are unaware of any rationale why it would be treated differently than other…
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Does the 50% loan value limitation under Regulation U apply to loans secured by margin stock for a purpose other than purchasing the stock?
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Yes, Regulation U’s loan value limitation applies to credit secured by margin stock for the purpose of carrying margin stock. The rule’s restrictions apply to lenders that “extend credit for the purpose of buying or carrying margin stock.” In the context of Regulation U, “carrying” margin stock means that the proceeds of the loan are…