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257 X--9889 R0g. U-JA (Copies to be sent to all Federal reserve banks) May 7, 1937 Mr. , Vice President, Federal Re:3erve Bank of ____ , ___ , -·---Dear I·dr. ---. Hoference is made to your letter of April 28, 1~-307, regarding cert<:tin questions which ha.ve beon presented to you under H0gulation U by Bt.:.nk & Trust Company, You st&to these questions rw follows: 11 (1) il'lay a bank, without regard to Regulation U, m<.tke a loan to a firm having membership in o. national securities exchange on socurities ownod by the firm, if the purpose of the loan is to furnish CE1Bh working capital for the conduct of tho brokerage business of the firm; i.e~, for purchasing and carrying securities for the r:.ccount of customers but not for the firm t s a~co1mt? "(2) May a bank, without regurd to Regulation U, muko a loan to a partn0r of such a member firm for the purpose :>f enabling such partner to muke o. capital contrtbution to his firm? 11 (3) May a bank make either of the above loans if the firm maintains for the partner a margin account in which there is a debit balance?" While, as you indicate, all the f:.J.cts involved in these casas r...re not entirely clear, upon the basis of the given facts t...ncl assuming the loans to be sGcured by stocks, the Board agrees with your view that the loans in oach of tho three instances referred to would ordinarily be subject to Regul::Ltion U. Tho si tuation represented by que:stion numbered (1) Geem::; to be quite similar to that covered in the Board's letter of April 5, 1937, (X-9862, Reg. U-13) and, on the principle str"'ted in th~t letter, would seem to bo a loan for the purpose of purchasing or carrying registered :Jtocks. Tho other lor..:.ns would scorn to bo subject to the regulation for subst&ntially sjmilar reasons. 258 X-3889 Eeg. U--14 ,, -,::_- You refer to the question of whether or not it would be advisa.ble to amend the regul.:ttion to e:cempt certain locms of the type here involved. C•1ref1..cl consideration hus been givml to the vurious aspects o1' the problem, including those ph~wes of the mu.tter discusGed. ln your letter; and the t)roblam will, of course, be given further study. It would seem to be prufer<J.blo, llowGVGr, for the present inquiry to be c:.nswered without regard to questions concerning such an ~:J.n,endment. Very truly yours, (Signed) Choster Morrill Chester Morrill, ~)ocretary.
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