Regulation U

AAA

DEFINITION of 'Regulation U'

The Federal Reserve Board regulation that governs loans by banks for the purchase of securities on margin. Regulation U limits the amount of leverage a bank or brokerage can extend to a borrower for the purposes of puchasing stocks, mutual funds and other market-traded securities.

INVESTOPEDIA EXPLAINS 'Regulation U'

Regulation U is designed to mitigate the adherent risk that exists when using leverage, 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.

RELATED TERMS
  1. Regulation Fair Disclosure - Reg ...

    A rule passed by the Securities and Exchange Commission in an ...
  2. Regulation G

    A federal regulation that requires insured depository institutions ...
  3. Regulation Q

    A Federal Reserve Board regulation that prohibited banks from ...
  4. Regulation T - Reg T

    The Federal Reserve Board regulation that governs customer cash ...
  5. Callable Bond

    A bond that can be redeemed by the issuer prior to its maturity. ...
  6. Federal Reserve System - FRS

    The central bank of the United States. The Fed, as it is commonly ...
Related Articles
  1. Finding Your Margin Investment Sweet ...
    Investing Basics

    Finding Your Margin Investment Sweet ...

  2. Leverage's
    Forex Education

    Leverage's "Double-Edged Sword" Need ...

  3. The Federal Reserve
    Economics

    The Federal Reserve

  4. Money And Politics
    Economics

    Money And Politics

comments powered by Disqus
Hot Definitions
  1. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following: ...
  2. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  3. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious ...
  4. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
  5. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by ...
  6. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
Trading Center