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Exam CRCM topic 1 question 121 discussion

Actual exam question from ABA's CRCM
Question #: 121
Topic #: 1
[All CRCM Questions]

Is the renewal of a loan considered to be a new extension of credit for purposes of valuing the collateral under Regulation U?

  • A. Yes
  • B. Yes, if any additional amounts are added to the loan balance
  • C. Yes, if any amounts other than interest, service charges, or taxes are added to the loan balance
  • D. No, a renewal is never considered to be a new credit
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Suggested Answer: C 🗳️

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Cam22
4 months ago
Selected Answer: C
Regulation U, which governs the amount of credit that banks can extend for the purpose of buying or carrying margin securities when the loan is secured directly or indirectly by those securities, requires that the value of the collateral be assessed at the time of the loan's origination to ensure compliance with margin requirements. A renewal of a loan under Regulation U is generally treated as a continuation of the existing credit agreement unless the terms of the loan are substantially altered.
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