Single Credit Rule-12 CFR 221.3(d)
Question
What is actually a Single credit rule-12 CFR 221.3(d)?
Answers
Explanations
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A. B. C. D.D
Regulation U, which is also known as 12 CFR 221, is a federal regulation that governs loans made by banks and other lenders that are secured by margin stock. Margin stock is a type of security that can be used as collateral for a loan, and it includes stocks that are traded on a national exchange or in the over-the-counter market.
Under Regulation U, lenders are required to follow certain rules when making loans that are secured by margin stock. One of these rules is the single credit rule, which is defined in 12 CFR 221.3(d).
According to the single credit rule, all-purpose credit extended to a customer will be considered to be a single credit for purposes of Regulation U. This means that if a lender makes multiple loans to a customer that are all-purpose in nature, those loans will be aggregated and treated as a single credit for purposes of determining compliance with Regulation U.
For example, if a lender makes a $100,000 loan to a customer for the purpose of purchasing margin stock, and later makes another $50,000 loan to the same customer for the purpose of renovating their home, those loans would be aggregated and treated as a single credit for purposes of Regulation U. This means that the lender would need to ensure that the combined value of the collateral securing the loans is sufficient to meet the requirements of Regulation U.
It is important to note that the single credit rule only applies to loans that are all-purpose in nature. If a lender makes loans that are not all-purpose, such as loans that are specifically for the purpose of purchasing margin stock, those loans would not be aggregated and treated as a single credit for purposes of Regulation U.
In summary, Option A is the correct answer, as the single credit rule in Regulation U stipulates that all-purpose credit extended to a customer will be considered to be a single credit for purposes of Regulation U. Option B is incorrect because it refers to the collateral aggregation rule, which is a separate rule under Regulation U. Option C is also incorrect because it is not related to the single credit rule.
