[Code of Federal Regulations] [Title 12, Volume 3] [Revised as of January 1, 2003] From the U.S. Government Printing Office via GPO Access [CITE: 12CFR221.3] [Page 37-39] TITLE 12--BANKS AND BANKING CHAPTER II--FEDERAL RESERVE SYSTEM PART 221--CREDIT BY BANKS AND PERSONS OTHER THAN BROKERS OR DEALERS FOR THE PURPOSE OF PURCHASING OR CARRYING MARGIN STOCK (REGULATION U)--Table of Contents Sec. 221.3 General requirements. (a) Extending, maintaining, and arranging credit--(1) Extending credit. No lender, except a plan-lender, as defined in Sec. 221.4(a), shall extend any purpose credit, secured directly or indirectly by margin stock, in an amount that exceeds the maximum loan value of the collateral securing the credit. (2) Maintaining credit. A lender may continue to maintain any credit initially extended in compliance with this part, regardless of: (i) Reduction in the customer's equity resulting from change in market prices; (ii) Change in the maximum loan value prescribed by this part; or (iii) Change in the status of the security (from nonmargin to margin) securing an existing purpose credit. (3) Arranging credit. No lender may arrange for the extension or maintenance of any purpose credit, except upon the same terms and conditions under which the lender itself may extend or maintain purpose credit under this part. (b) Registration of nonbank lenders; termination of registration; annual report--(1) Registration. Every person other than a person subject to part 220 of this chapter or a bank who, in the ordinary course of business, extends or maintains credit secured, directly or indirectly, by any margin stock shall register on Federal Reserve Form FR G-1 (OMB control number 7100-0011) within 30 days after the end of any calendar quarter during which: (i) The amount of credit extended equals $200,000 or more; or (ii) The amount of credit outstanding at any time during that calendar quarter equals $500,000 or more. (2) Deregistration. A registered nonbank lender may apply to terminate its registration, by filing Federal Reserve Form FR G-2 (OMB control number 7100-0011), if the lender has not, during the preceding six calendar months, had more than $200,000 of such credit outstanding. Registration shall be deemed terminated when the application is approved by the Board. (3) Annual report. Every registered nonbank lender shall, within 30 days following June 30 of every year, file Form FR G-4 (OMB control number 7100-0011). (4) Where to register and file applications and reports. Registration statements, applications to terminate registration, and annual reports shall be filed with the Federal Reserve Bank of the district in which the principal office of the lender is located. [[Page 38]] (c) Purpose statement--(1) General rule--(i) Banks. Except for credit extended under paragraph (c)(2) of this section, whenever a bank extends credit secured directly or indirectly by any margin stock, in an amount exceeding $100,000, the bank shall require its customer to execute Form FR U-1 (OMB No. 7100-0115), which shall be signed and accepted by a duly authorized officer of the bank acting in good faith. (ii) Nonbank lenders. Except for credit extended under paragraph (c)(2) of this section or Sec. 221.4, whenever a nonbank lender extends credit secured directly or indirectly by any margin stock, the nonbank lender shall require its customer to execute Form FR G-3 (OMB control number 7100-0018), which shall be signed and accepted by a duly authorized representative of the nonbank lender acting in good faith. (2) Purpose statement for revolving-credit or multiple-draw agreements or financing of securities purchases on a payment-against- delivery basis--(i) Banks. If a bank extends credit, secured directly or indirectly by any margin stock, in an amount exceeding $100,000, under a revolving-credit or other multiple-draw agreement, Form FR U-1 must be executed at the time the credit arrangement is originally established and must be amended as described in paragraph (c)(2)(iv) of this section for each disbursement if all of the collateral for the agreement is not pledged at the time the agreement is originally established. (ii) Nonbank lenders. If a nonbank lender extends credit, secured directly or indirectly by any margin stock, under a revolving-credit or other multiple-draw agreement, Form FR G-3 must be executed at the time the credit arrangement is originally established and must be amended as described in paragraph (c)(2)(iv) of this section for each disbursement if all of the collateral for the agreement is not pledged at the time the agreement is originally established. (iii) Collateral. If a purpose statement executed at the time the credit arrangement is initially made indicates that the purpose is to purchase or carry margin stock, the credit will be deemed in compliance with this part if: (A) The maximum loan value of the collateral at least equals the aggregate amount of funds actually disbursed; or (B) At the end of any day on which credit is extended under the agreement, the lender calls for additional collateral sufficient to bring the credit into compliance with Sec. 221.7 (the Supplement). (iv) Amendment of purpose statement. For any purpose credit disbursed under the agreement, the lender shall obtain and attach to the executed Form FR U-1 or FR G-3 a current list of collateral which adequately supports all credit extended under the agreement. (d) Single credit rule. (1) All purpose credit extended to a customer shall be treated as a single credit, and all the collateral securing such credit shall be considered in determining whether or not the credit complies with this part, except that syndicated loans need not be aggregated with other unrelated purpose credit extended by the same lender. (2) A lender that has extended purpose credit secured by margin stock may not subsequently extend unsecured purpose credit to the same customer unless the combined credit does not exceed the maximum loan value of the collateral securing the prior credit. (3) If a lender extended unsecured purpose credit to a customer prior to the extension of purpose credit secured by margin stock, the credits shall be combined and treated as a single credit solely for the purposes of the withdrawal and substitution provision of paragraph (f) of this section. (4) If a lender extends purpose credit secured by any margin stock and non-purpose credit to the same customer, the lender shall treat the credits as two separate loans and may not rely upon the required collateral securing the purpose credit for the nonpurpose credit. (e) Exempted borrowers. (1) An exempted borrower that has been in existence for less than one year may meet the definition of exempted borrower based on a six-month period. (2) Once a member of a national securities exchange or registered broker or dealer ceases to qualify as an exempted borrower, it shall notify its lenders of this fact. Any new extensions of credit [[Page 39]] to such a borrower, including rollovers, renewals, and additional draws on existing lines of credit, are subject to the provisions of this part. (f) Withdrawals and substitutions. (1) A lender may permit any withdrawal or substitution of cash or collateral by the customer if the withdrawal or substitution would not: (i) Cause the credit to exceed the maximum loan value of the collateral; or (ii) Increase the amount by which the credit exceeds the maximum loan value of the collateral. (2) For purposes of this section, the maximum loan value of the collateral on the day of the withdrawal or substitution shall be used. (g) Exchange offers. To enable a customer to participate in a reorganization, recapitalization or exchange offer that is made to holders of an issue of margin stock, a lender may permit substitution of the securities received. A nonmargin, nonexempted security acquired in exchange for a margin stock shall be treated as if it is margin stock for a period of 60 days following the exchange. (h) Renewals and extensions of maturity. A renewal or extension of maturity of a credit need not be considered a new extension of credit if the amount of the credit is increased only by the addition of interest, service charges, or taxes with respect to the credit. (i) Transfers of credit. (1) A transfer of a credit between customers or between lenders shall not be considered a new extension of credit if: (i) The original credit was extended by a lender in compliance with this part or by a lender subject to part 207 of this chapter in effect prior to April 1, 1998, (See part 207 appearing in the 12 CFR parts 200 to 219 edition revised as of January 1, 1997), in a manner that would have complied with this part; (ii) The transfer is not made to evade this part; (iii) The amount of credit is not increased; and (iv) The collateral for the credit is not changed. (2) Any transfer between customers at the same lender shall be accompanied by a statement by the transferor customer describing the circumstances giving rise to the transfer and shall be accepted and signed by a representative of the lender acting in good faith. The lender shall keep such statement with its records of the transferee account. (3) When a transfer is made between lenders, the transferee shall obtain a copy of the Form FR U-1 or Form FR G-3 originally filed with the transferor and retain the copy with its records of the transferee account. If no form was originally filed with the transferor, the transferee may accept in good faith a statement from the transferor describing the purpose of the loan and the collateral securing it. (j) Action for lender's protection. Nothing in this part shall require a bank to waive or forego any lien or prevent a bank from taking any action it deems necessary in good faith for its protection. (k) Mistakes in good faith. A mistake in good faith in connection with the extension or maintenance of credit shall not be a violation of this part.