Am I correct that the Reg U requirements only apply if the loan is to purchase margin stock in an amount exceeding $100,000 and the loan is also secured by that stock? We have consumer loans where the lender may take margin stock as additional collateral, but I'm wanting to make sure I understand the Reg U requirement would not apply in that instance? Thank you.

I can't tell you the last time I had to have one of these used, but if you look at the Reg. it addresses the collateral, not the purchase.

(c) 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.

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Andy Zavoina
Opinions stated are not necessarily that of my employer.

[This message has been edited by Andy Z (edited 08-11-2001).]

[This message has been edited by Andy Z (edited 08-12-2001).]

Regulation U requires that form FR-U1 be completed for any loan over $100,000 secured directly or indirectly (defined term) by margin stock (be careful - the definition of "margin stock" changed a couple of years ago). There are three sections to form FR-U1. Section I asks about the purpose of the loan and requires the borrower's signature. It must be completed for all loans where the form is required. If Section I reveals that the loan is for the purpose of purchasing or carrying margin stock (not necessarily the same margin stock securing the loan, mind you), then Section II must also be completed. Section II identifies all of the margin collateral securing the loan and limits the LTV to 50%. This only comes into play, though, if the purpose of the loan is to purchase or carry margin stock. Section III requires a duly authorized bank representative to sign and accept the form acting in good faith.

Key points:
1) The form is required for all margin stock-secured loans over $100,000, not just those to purchase stock.
2) No distinction between consumer and commercial purpose
3) Specific margin requirements apply only if purpose of loan is to purchase or carry ANY margin stock (not just the stock securing the loan)
4) Section I and Section III must be completed on every FR-U1. Section II is only required if purpose of loan is to purchase or carry margin stock.
5) Record retention of form FR-U1 is 3 years after credit is extinguished.

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Jim Bedsole, CRCM, CBA, CFSA

Opinions expressed are my own, and do not necessarily reflect those of my employer.

[This message has been edited by jbedsole (edited 08-13-2001).]

Magic Banker's post clarified several issues for me. I have an additional question though. Under Reg U, what date do you use to determine market value and therefore loan amount allowed for purpose loans . . . date of purchase or date of loan. Consider the scenario when the loan is to purchase margined stock, but the loan is secured by previously purchased (now owned) margin stock and the new stock being purchased. What market value do you use on the previously purchased stock - - the loan date or the original purchase price?

You would use currrent value. You also would have to perform on-going monitoring to ensure that collateral values stayed above the minimum margin limitations.