First National Bank has made three loans to Mrs. Elmwood. Two of the loans are regulated credits (they are for the purpose of purchasing margin stock and secured by margin stock). The third loan is for the purpose of purchasing margin and nonmargin stock, and the loan is secured by real estate and margin stock.
Can the bank avoid having the third loan combined with the other two for Regulation U purposes?
When a loan is secured by margin stock, or if part of the loan is used to purchase margin stock, it falls under Regulation U's jurisdiction as a regulated credit. Therefore, at least the portion of the third loan that is secured by margin stock must be treated as regulated credit and combined with the other two loans for Regulation U purposes.
Regulation U sets forth the rules regarding the amount of credit that banks can extend to borrowers for the purpose of buying or carrying margin securities (stocks that can be bought on margin as defined by the Federal Reserve Board). When a loan is secured directly or indirectly by margin stock, the part of the loan that is for the purpose of purchasing margin stock or is secured by margin stock falls under the purview of Regulation U and is considered a regulated credit.