- This topic has 1 reply, 2 voices, and was last updated 7 years, 2 months ago by
.
-
Posts
-
If we take margin stock as collateral and the loan is non-purpose credit are we still required to follow the 50% rule?
The 50% limitation applies only to purpose credit. However, you may be required to complete form U-1. (See link to FRB Reg U Compliance Guide and an excerpt.)
https://www.federalreserve.gov/bankinforeg/regucg.htm
What are the responsibilities of a bank lender under Regulation U?
Regulation U has two important requirements for bank lenders:
The bank lender must obtain from the borrower, and complete, a purpose statement (form U-1) for each loan secured by margin stock if the loan exceeds $100,000.
The bank lender must adhere to margin requirements (currently 50 percent) for all purpose loans secured by margin stock.
What is a nonpurpose loan under Regulation U?
A nonpurpose loan is a loan made for any purpose other than purchasing or carrying margin stock.
What are the requirements of Regulation U for a nonpurpose loan?
If the loan is secured directly or indirectly by margin stock, form G-3 or form U-1 must be completed as described above. If the loan is not secured directly or indirectly by margin stock, no form need be completed. Regulation U places no restriction on the amount of credit that may be extended on nonpurpose loans secured by margin stock.What are forms G-3 and U-1?
Forms G-3 and U-1 are often referred to as “purpose statements.” Each is a two-page form wherein the borrower must disclose (1) the use to which the loan proceeds will be put, (2) the amount of the loan, and (3) the collateral for the loan. The collateral need not be listed for nonpurpose loans. The form must be signed by both the borrower and the lender. The form is not filed with the Federal Reserve, but it must be kept in the lender’s records for at least three years after the termination of the credit.
- You must be logged in to reply to this topic.