Legal Definitions - margin list

The margin list is a specific record maintained by the Federal Reserve Board that identifies certain bank stocks. When a bank's stock appears on this list, it means there's a federal restriction on how much money can be loaned against that stock if it's used as collateral. This limit is typically a percentage of the stock's current market value. The purpose of this list is to manage financial risk within the banking system.

If a bank's stock is not on the margin list, there is no such federal limit, allowing lenders more discretion in determining the loan value of that stock when it's offered as security.

• Example 1: Borrowing with Stock on the Margin List

  Imagine Sarah owns shares in "Community First Bank," a regional institution whose stock is currently on the Federal Reserve's margin list with a 50% loan value limit. Sarah wants to borrow $100,000 and offers her $200,000 worth of Community First Bank stock as collateral for the loan.

  This illustrates the margin list because, due to Community First Bank being on the list, the maximum loan value for her stock is federally capped at 50% of its market value, which is $100,000 ($200,000 * 0.50). Even if her lender might otherwise be willing to lend more, they are restricted to this amount for this specific collateral by federal regulation.

• Example 2: Borrowing with Stock Not on the Margin List

  Consider David, who owns shares in "Global Financial Corp.," a major national bank whose stock is not on the Federal Reserve's margin list. David also wants to borrow $100,000 and offers his $125,000 worth of Global Financial Corp. stock as collateral.

  This illustrates the margin list because, since Global Financial Corp. is not on the list, there's no federal percentage limit on the loan value of its stock. His lender can assess the risk independently and might offer a loan closer to the full market value of the stock, perhaps $100,000 against $125,000, based on their own internal policies and David's creditworthiness, without being bound by a specific federal cap for the collateral.

• Example 3: Lender's Perspective on Risk Management

  Horizon Bank's loan officer, Maria, is reviewing a loan application where the borrower is offering $500,000 in stock from "Mid-State Savings," a bank known to be on the margin list with a 60% loan value limit.

  This illustrates the margin list because Maria must inform the borrower that despite the stock's market value, the maximum amount Horizon Bank can recognize for collateral purposes from Mid-State Savings stock is $300,000 ($500,000 * 0.60) due to the Federal Reserve's margin list restriction. This ensures Horizon Bank complies with federal regulations designed to limit exposure to potential volatility in certain bank stocks, thereby managing risk within the financial system.