Certified Regulatory Compliance Manager (CRCM) — Question 47

Banks may extend and maintain purpose credit without complying with Regulation U if the credit is extended:

Answer options

• A. To a bank auditor
• B. To a qualified employee stock ownership plan running previously but not now
• C. To any customer, other than a broker or dealer, to temporarily finance the purchase or sale of securities for prompt delivery, if the credit is to be repaid in the ordinary course of business on the completion of the transaction
• D. To enable a customer to meet emergency expenses not reasonably foreseen and if the bank obtains a good faith statement from the customer. Emergency expenses are ones related to unforeseen death or disability, not a chance to make a profit.

Correct answer: C, D

Explanation

Option C is correct because it allows banks to extend credit for the temporary financing of securities transactions, which is permissible under Regulation U. Option D, while also providing a valid scenario for extending credit, does not align with the specific criteria set forth in Regulation U as clearly as option C does. Options A and B do not meet the criteria for exemptions under Regulation U, as they pertain to individuals or plans that are not relevant under the regulation's stipulations.