Regulation U Exemptions for Banks: Purpose Credit Extensions

CD

Regulation U is a federal regulation that sets limits on the amount of credit that banks can extend for the purpose of buying or carrying margin stock, which is stock purchased with borrowed money. The regulation requires banks to obtain certain information and to make certain disclosures before extending credit for the purpose of buying or carrying margin stock. Banks must also maintain certain records and report certain transactions.

However, there are certain exceptions to the requirement to comply with Regulation U. One of these exceptions is for the extension and maintenance of purpose credit, which is credit that is extended for a specific purpose other than buying or carrying margin stock. This exception applies if the credit is extended to certain types of borrowers or for certain types of transactions.

The answer to the question "Banks may extend and maintain purpose credit without complying with Regulation U if the credit is extended:" is option C, which states that banks may extend and maintain purpose credit without complying with Regulation U if the credit is extended to any customer, other than a broker or dealer, to temporarily finance the purchase or sale of securities for prompt delivery, if the credit is to be repaid in the ordinary course of business on the completion of the transaction.

In other words, banks do not have to comply with Regulation U if they extend credit to customers who need temporary financing to purchase or sell securities for prompt delivery, as long as the credit is to be repaid in the ordinary course of business on the completion of the transaction. This exception applies only to customers who are not brokers or dealers.

It is important to note that this exception does not apply to all types of credit transactions. Banks must still comply with Regulation U for credit transactions that involve buying or carrying margin stock, unless another exception applies.