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FEDERAL RESERVE BANK
OF NEW YORK
I" Circular N o. 3 8 0 6 1
I January 7, 19S2 J

IN T E R P R E T A T IO N OF R EG U LA TIO N U

Loans to Brokers or Dealers

To Banks, Brokers and Dealers in Securities, Members o f National Securities
Exchanges, and Other Interested Persons, in the
Second Federal Reserve District :

The Board o f Governors o f the Federal Reserve System has issued the following interpreĀ­
tation of Regulation U :
Questions have arisen as to the adequacy of statements received by lending banks under section
3(a) of Regulation U in the case of loans to brokers or dealers secured by stock where the proceeds of
the loans are to be used to finance customer transactions involving the purchasing or carrying of
registered stocks.
While some such loans may qualify for exemption under section 2 of the regulation, unless they
do qualify for such an exemption they are subject to the regulation. For example, if a loan so secured
is made to a broker to furnish cash working capital for the conduct of his brokerage business (i.e. for
purchasing and carrying securities for the account of customers), the maximum loan value prescribed
in the Supplement to the regulation would be applicable unless the loan should be of a kind exempted
by section 2. This result would not be affected by the fact that the stock given as security for the
loan was or included stock owned by the brokerage firm.
In view of the foregoing, the statement referred to in section 3(a) which the lending bank may
accept and rely upon in good faith in determining the purpose of the loan would be inadequate if
the form of statement accepted or used by the bank failed to call for answers which would indicate
whether or not the loan was of the kind discussed above.

Additional copies o f this circular will be furnished upon request.




A

llan

S proul,

President.


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102