bank loan, collateralized by pledge of securities, in which the proceeds of the note are to be used for purposes other than purchase of stocks or bonds. Banks are required by Regulation U to have a borrower execute a purpose statement regardless of the use of the loan, whenever a loan is secured directly or indirectly by securities in a margin account.
loan for which securities are pledged as collateral but which is not used to purchase or carry securities. Under Federal Reserve Board Regulation U, a borrower using securities as collateral must sign an affidavit called a purpose statement, indicating the use to which the loan is to be put. Regulation U limits the amount of credit a bank may extend for purchasing and carrying margin securities, where the credit is secured directly or indirectly by stock.
