Regulation T
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Federal Reserve Board The Board of Governors of the Federal Reserve System, commonly known as the Federal Reserve Board, is the main governing body of the Federal Reserve, Federal Reserve System. It is charged with overseeing the Federal Reserve Banks and with helping ...
Regulation T (also referred to as Reg T) is 12 CFR §220 – Code of Federal Regulations, Title 12, Chapter II, Subchapter A, Part 220 (Credit by Brokers and Dealers).Federal Reserve Website
/ref> Regulation T governs the extension of credit by securities brokers and dealers in the United States. Its best-known function is the control of margin requirements for stocks bought on margin. The initial
margin requirement In finance Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of Production (economics), production, Distribution (economics), distribution, and Consump ...
for such margin stock purchases has been 50% since 1974, but Regulation T gives the Federal Reserve the authority to change this percentage. Raising the margin requirement ostensibly reduces risk in the financial system by reducing the potential leverage and total buying power of investors. Conversely, lowering the margin requirement increases
systemic risk In finance Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of Production (economics), production, Distribution (economics), distribution, and Consumpt ...
by expanding the buying power and leverage available to investors. Since 1974, the Federal Reserve has not deemed it necessary to adjust the margin requirement despite periodic extremes of price volatility in the equities markets.{{Cite web , title=Margin Requirements as a Policy Tool? , url=https://www.frbsf.org/economic-research/publications/economic-letter/2000/march/margin-requirements-as-a-policy-tool/ , access-date=2022-03-31 , website=Federal Reserve Bank of San Francisco , language=en


External links


Text of Regulation T


References

Federal Reserve System Margin policy