How to Complete Form FR U-1: Borrower, Collateral, and Certification

Form FR U-1 has three parts: the borrower completes Part I with the loan amount and purpose, the bank completes Part II listing collateral and its market value if any of the credit will buy or carry margin stock, and a bank officer signs Part III certifying good-faith reliance on the borrower’s statement. To complete Form FR U-1 correctly, work through it in that order, keep the valuations documented with date and source, and file the signed original with the loan records rather than sending it to the Federal Reserve.¹

The form is required whenever a bank extends credit exceeding $100,000 that is secured directly or indirectly by any margin stock, regardless of what the loan is actually for.² Margin stock is broader than exchange-listed equities: it also covers most mutual fund shares, convertible debt, warrants, and NMS-designated OTC securities.³ The $100,000 figure is the total credit under the agreement, not a single draw, so revolving arrangements need the form at inception.

Part I: The Borrower’s Section

Part I asks the borrower two questions: the total dollar amount of the credit, and whether any part of it will be used to purchase or carry margin stock.⁴ If the answer is yes, the loan is “purpose credit” and Part II must be filled in. If the answer is no, the borrower has to describe the actual purpose in the space provided. Write something concrete. “Home renovation,” “acquisition of manufacturing equipment,” or “consolidation of specified credit card balances” gives the bank something to accept in good faith; “business purposes” does not.

The borrower then signs a certification that the information is true, accurate, and complete, and that the securities pledged as collateral are genuine, unaltered, and not stolen or forged. This is a statement made in a matter within the jurisdiction of a federal agency, so a false answer carries potential exposure under 18 U.S.C. § 1001, up to five years of imprisonment along with fines.⁵

Part II: The Collateral Listing

The bank completes Part II, and only when Part I identifies the credit as purpose credit. Collateral is listed in three categories, and each entry needs a valuation with the date and the source of the price used.⁴

Margin stock other than convertible debt. Enter the number of shares, the issuer’s name, market price per share, the date and source of that price, and the total market value.
Convertible debt securities. Enter the principal amount, issue name, market price, date and source, and total market value.
Other collateral. Give a brief description, the market price, the date and source, and the good faith loan value assigned by the bank.

The valuation matters because Regulation U caps the maximum loan value of margin stock and convertible debt at 50 percent of current market value.⁶ A $200,000 purpose loan therefore needs at least $400,000 of margin stock behind it. Non-margin collateral gets a good faith loan value set by the lender rather than a fixed percentage. Puts, calls, and option combinations that don’t independently qualify as margin stock have zero loan value, so they can be listed but they contribute nothing to the collateral cushion.

If the credit is a revolving or multiple-draw facility and not all collateral is pledged at closing, amend the form for each subsequent disbursement rather than starting a new one.² Keep every version in the file.

Part III: The Bank Officer’s Certification

A duly authorized bank officer signs Part III. The signature certifies four things: that the credit may be subject to Regulation U, that the officer has accepted the borrower’s Part I statement in good faith, that all information on the form is true, accurate, and complete, and that any securities not registered in the borrower’s name are backed by the registered owner’s written consent to pledge. Physically delivered securities must have been examined and validated under bank policy and the Securities Exchange Act of 1934.⁴

What Good Faith Requires

Good faith is not a formality. Under 12 CFR 221.106, a bank fails the standard if it had knowledge of facts contrary to the borrower’s stated purpose at the time of the loan, or if the circumstances were enough to put the bank on notice that the statement was unreliable.⁷ The interpretive guidance identifies patterns that should prompt closer inquiry before the officer signs:

The borrower is not personally known to the bank or to the loan officer.
A broker or dealer will deliver margin stock as collateral, or will receive the loan proceeds. In that case the bank cannot accept a non-purpose statement without a reliable explanation.
Margin stock is substituted for bonds or non-margin collateral shortly after closing, or on more than one occasion.
An unsecured loan becomes secured by margin stock soon after disbursement.

These are examples rather than a complete list. The rule states plainly that no purpose statement has regulatory value unless the lender who accepted it exercised reasonable diligence to learn the truth.

Renewals, Increases, and Substitutions

Rolling a loan forward does not automatically require a new Form U-1. A renewal or maturity extension is not a new extension of credit as long as the outstanding amount grows only by accrued interest, service charges, or taxes.² Any increase in principal is treated as a new loan for purpose-determination, and a fresh Form U-1 has to be executed.

Collateral can be substituted or withdrawn as long as neither action pushes the credit above the maximum loan value of what remains, or worsens an existing shortfall. Existing loans that were compliant at inception can continue even if market values fall, the Board changes the maximum loan value percentage, or a security’s status shifts from non-margin to margin.

Where the Form Goes

Nowhere, in the sense that matters most to a first-time preparer: the completed form is not sent to the Federal Reserve. The bank keeps the signed original, along with any amendments, in the loan file for at least three years after the credit is fully repaid.¹ Federal examiners review these forms during routine audits to confirm the bank has documented its margin-secured lending and observed the maximum loan value caps. A missing purpose statement, or one whose collateral values don’t reconcile, is one of the fastest ways to attract examiner attention in a securities-credit portfolio.

A Note on Who Uses This Form

Form FR U-1 is the bank version. Non-bank lenders subject to Regulation U document the same information on Form FR G-3, and brokers and dealers use Form FR T-4.¹ If your institution is not a bank, the instructions above apply structurally, but you should be working from G-3 or T-4, not U-1.

1
Federal Reserve Board. FR U-1 Statement of Purpose for an Extension of Credit Secured by Margin Stock
2
eCFR. 12 CFR 221.3 – General Requirements
3
GovInfo. 12 CFR 221.2 – Definitions
4
Federal Reserve. Statement of Purpose for an Extension of Credit Secured by Margin Stock – FR U-1
5
Office of the Law Revision Counsel. 18 USC 1001 – Statements or Entries Generally
6
eCFR. 12 CFR 221.7 – Supplement: Maximum Loan Value of Margin Stock and Other Collateral
7
eCFR. 12 CFR 221.106 – Reliance in Good Faith on Statement of Purpose of Loan