Is the renewal of a loan considered to be a new extension of credit for purposes of valuing the collateral under Regulation U?
Is the renewal of a loan considered to be a new extension of credit for purposes of valuing the collateral under Regulation U?
The renewal of a loan is considered a new extension of credit if any amounts other than interest, service charges, or taxes are added to the loan balance. This ensures compliance with Regulation U regarding the valuation of collateral.
Regulation U, which governs the amount of credit that banks can extend for the purpose of buying or carrying margin securities when the loan is secured directly or indirectly by those securities, requires that the value of the collateral be assessed at the time of the loan's origination to ensure compliance with margin requirements. A renewal of a loan under Regulation U is generally treated as a continuation of the existing credit agreement unless the terms of the loan are substantially altered.