How is the maximum loan value of margin stock defined?

A. As a percentage of the amount to be loaned

B. As a percentage of the book value of the stock

C. As a percentage of the current market value of the stock

D. As a percentage of the good faith loan value of the stock

C. As a percentage of the current market value of the stock

Reg U: 12 CFR 221.7

If a bank makes a loan that is in compliance with Regulation U, what will be the status of the loan at its consummation?

A. The loan will be in compliance until it's renewed, regardless of the reduction of the borrower's equity in the stock

B. The loan will be in compliance only if the value of the stock remains within the margin requirements

C. The loan will be in compliance unless the status of the stock changes (for example, margin or nonmargin)

D. The loan will always be in compliance until its maturity, regardless of the reduction of the borrower's equity in the stock, provided there are no substitutions or withdrawals that adversely affect the loan value.

D. The loan will always be in compliance until its maturity, regardless of the reduction of the borrower's equity in the stock, provided there are no substitutions or withdrawals that adversely affect the loan value.

Reg U: 12 CFR 221.3(a)(2)

A bank may continue to maintain a credit even if the borrower's equity in the stock is reduced or if the status of the stock changes.

Which of the following is NOT included in the definition of margin stock?

A. Stock traded on a national securities exchange

B. Nonmargin stock convertible to margin stock

C. Debt securities convertible to margin stock

D. Warrants to purchase margin stock

B. Nonmargin stock convertible to margin stock

Reg U: 12 CFR 221.2

The Federal Reserve Board staff has consistently ruled that nonmargin stock convertible to margin stock is not considered to be margin stock until its conversion.

First National Bank had 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?

A. Yes, but the real estate must have a value of at least twice as much as the third loan.

B. No.  At least the part of the loan attributable to the security of the margin stock must be treated as a regulated credit and combined with the other two loans.

C. No.  All of the third loan must be combined with the others.

D. Yes.  As long as there is any other collateral, the loan will not be a regulated credit.

B. No.  At least the part of the loan attributable to the security of the margin stock must be treated as a regulated credit and combined with the other two loans.

Reg U: 12 CFR 227.3(d)

For which of the following must a bank obtain Form FR U-1 when a loan is in excess of $100,000?

A. A loan made to purchase margin stock

B. A loan secured by margin stock

C. A loan made to purchase margin stock and secured by margin stock

D. A loan secured by stock (either margin or nonmargin)

B. A loan secured by margin stock

Reg U: 12 CFR 221.3(c)

First National Bank made the following loans to Mr. James Wilson during the previous calendar year:

• Loan A, made on February 2, is a loan for purchasing margin stock and is secured by margin stock
• Loan B, made on March 15, is also for purchasing margin stock and is secured by margin stock
• Loan C, made on June 30, is an unsecured loan for purchasing margin stock
• Loan D, made on September 10, is for purchasing a car, secured by the car

All the loans are still outstanding at the end of the year.  Which of the loans must be combined for purposes of the margin requirements of Regulation U?

A. All of the loans must be combined

B. Loans A and B

C. None of the loans must be combined

D. Loans A, B, and C

D. Loans A, B, and C

Reg U: 12 CFR 227.3(d)

All purpose credit extended to a customer must be treated as a single credit for purposes of Regulation U.  Unsecured purpose credit extended after secured purpose credit will be comhined for purposes of determining whether the loan complies with the restrictions on the maximum loan value of the collateral.

First National Bank has made a loan to Mr. Good, secured by margin stock, to purchase margin stock.  He trades stocks frequently, makes substitutions on loan collateral regularly, and sometimes withdraws collateral and does not replace it.  Must FNB ensure that margin stock requirements are met after every substitution and withdrawal?

A. Yes.  the margin requirements must be met at all times.

B. No.  If the margin requirements were met when the loan was made, there are no further requirements.

C. No.  The bank is only required  to ensure that withdrawals do no violate margin requirements; collateral substitutions are not covered.

D. No.  In this case the margin requirement must be met only when the loan is renewed.

A. Yes.  the margin requirements must be met at all times.

Reg U: 12 CFR 227.3(f)

A bank may permit a customer to make substitutions and withdrawals, but the margin requirements must be met at all times.

Is the renewal of a loan considered to be a new extension of credit for purposes of valuing the collateral under Regulation U?

A. Yes

B. Yes, if any additional amounts are added to the loan balance

C. Yes, if any amounts other than interest, service charges, or taxes are added to the loan balance

D. No, a renewal is never considered to be a new credit

C. Yes, if any amounts other than interest, service charges, or taxes are added to the loan balance

Reg U: 12 CFR 227.3(h)

Renewals or extensions are not considered to be new credit unless the amount of the credit is increased by funds other than interest, service charges, or taxes.

Which of the following credit arrangements would most likely be considered a purpose credit because it is indirectly secured by margin stock?

A. A loan made to purchase margin stock secured by nonmargin stock

B. A loan made to a company for various corporate purposes, including the purchase of margin stock, secured by the corporate assets, which from time to time include margin stock; on the date of the consummation of the transaction approximately 10 percent of the assets of the company are margin stock

C. A loan made to purchase margin stock, guaranteed by an individual who has pledged margin stock as security for the guarantee

D. Bank is the trustee for a qualified pension plan from which the participants may borrow and use their interest in the plan as security; a participant borrows money for the purpose of purchasing margin stock

C. A loan made to purchase margin stock, guaranteed by an individual who has pledged margin stock as security for the guarantee

Reg U: 12 CFR 221.2

The Federal Reserve Board has issued a staff opinion letter indicating that if the guarantee is collateralized by margin stock and the purpose of the loan is to purchase stock, then the loan is indirectly secured by margin stock.

Under Regulation U, prior to extending credit secured by margin stock for more than $100,000, a national bank must obtain which of the following?

A. Certificate of value for the collateral

B. Written statement from the borrower as to the purpose of the loan

C. Written statement certifying the borrower's business address and daytime phone number

D. Notice from the borrower as to his willingness to provide additional margin stock as collateral

B. Written statement from the borrower as to the purpose of the loan

Reg U: 12 CFR 221.3(c)

The borrower's statement of purpose is part of Form FR U-1, which is required for this type of loan.

In evaluating the coverage of a bank's Regulation U compliance for loans to purchase or carry margin stocks, which of the following securities is NOT covered in the regulatory definition of "margin stock"?

A. Any OTC stock

B. A security issued by an investment company that is licensed under the Small Business Investment Act

C. A warrant or right to subscribe to, or purchase, a margin stock

D. An equity security registered, or having unlisted trading privileges, on a national exchange

B. A security issued by an investment company that is licensed under the Small Business Investment Act

Reg U: 12 CFR 221.2(5)(a)(i)

All of the alternatives except for (b) are specifically included in the coverage.  Securities issued by an investment company licensed under the SBA Act is specifically exempted from coverage.