Extending Credit and Regulation T

The speculative practice of buying securities on margin was one of the primary contributors to the stock market crash of 1929. Investors routinely borrowed as much as 90% of the price of securities from their brokers. In response, the Securities Exchange Act gave the Federal Reserve Board authority to regulate this practice by setting minimum margin levels. Regulation T was passed later that year.

Regulation T has two general purposes. First, it regulates the extension of credit by broker-dealers by limiting how much an investor may borrow to cover the initial purchase of a security. Although it gives the Federal Reserve Board authority to govern the maintenance margin as well, the Fed has delegated thi