We are preparing to make a rather large loan to a customer to acquire additional stock in a private company. The loan will be secured by his existing stock and newly acquired stock with a LTV of 59% (cost basis used for value of stock since it is not traded).

Am I right to assume that this transaction falls outside the scope of Reg U and other than our internal lending policies, is there any other regulatory considerations that I should be making.

To fall under the restrictions of Regulation U a loan must pass the following tests: (look especially to the first test.)

o - The stock involved must be margin stock. Lending on the collateral of nonmargin stock, such as the stock of a closely held corporation is not restricted.

o - The loan must be secured directly or indirectly by the margin stock. A loan is indirectly secured by stock if the borrower‘s right to sell, pledge, or dispose of the stock is restricted; or if the exercise of such a right gives the bank the right to accelerate the maturity of the credit

0 - The purpose of the loan must be to purchase or carry margin stock.

I would make sure to verify the total stock outstanding and take the normal credit risks.

Just IMHO - taking stock in a privately held corporation as collateral is best left to venture capital type lenders and not commercial banks. Reg. U is not your concern, it is the S&S examiners.