what is regulation u 
regulation u is a federal reserve board regulation that governs loans by entities involving securities as collateral and the purchase of securities on margin regulation u limits the amount of leverage that can be extended for loans secured by securities for the purpose of buying more securities securities involved typically include stocks mutual funds and other market traded securities understanding regulation uregulation u is designed to mitigate the adherent risks that exist when using margin leverage in securities trading especially when too much leverage is granted to an individual or business by limiting the margin amount regulation u aims to limit the potential losses that both borrowers and banks or lenders can sustain in instances where leverage can lead to very large losses relative to the physical capital extended regulation u specifically focuses on leverage extended with securities as collateral for the purchase of additional securities it applies to entities other than broker dealers such as commercial banks savings and loan associations federal savings banks credit unions production credit associations insurance companies and companies that have employee stock option plans regulation u sets a limit on the maximum loan amount an entity can issue to a borrower securing the loan against stock or other securities for the purpose of buying more securities the maximum loan value that can be offered is 50 of the collateral securities market value 1regulation u is designed to put a floor on potential losses that borrowers and banks or lenders can suffer in instances where leverage can lead to big losses relative to the capital that was made available bank lender requirementsregulation u has two important requirements that bank lenders must comply with first a bank lender must obtain a purpose statement form u 1 for loans secured by collateral that exceed 100 000 second a bank lender can only extend credit for 50 of the value of the securities used as collateral on the loan if the loan is to be used for securities purchases 1regulation u specifically applies to secured loans extended for the purpose of buying securities this is why purpose statements are important for complying with regulation u purpose statements are more strictly enforced for loans exceeding 100 000 a bank lender does not have federal reserve board restrictions when issuing a loan secured with securities that are not intended for the use of buying more securities 1the year regulation u first began covering securities credit extended specifically by commercial banks 1example of regulation u limitsfor example assume a borrower would like to borrow money from a bank for the purpose of buying securities and the borrower plans to use 400 000 in securities as collateral the loan would require a form u 1 disclosing the purpose of the loan since the loan is for the purpose of buying more securities the maximum amount of credit the bank can extend to the borrower is 200 000 if the borrower increased the amount of collateral he was willing to use to secure the loan to 500 000 then the bank could offer him a loan for 250 000 regulation u exemptionssome exceptions to regulation u may apply nonbank lenders are subject to slightly different oversight when lending with securities as collateral additionally loans offered against employee stock option plans may be exempt from regulation u requirements 