Final answer:
Reg T and Reg U are Federal Reserve Board regulations. Reg T governs securities brokers and dealers' credit extensions, while Reg U applies to lenders providing credit for buying margin stock. Both regulate the leverage offered in the purchase of securities.
Step-by-step explanation:
The terms Reg T and Reg U refer to two different sets of regulations established by Federal Reserve Board governing credit issues. Reg T involves the extension of credit by securities brokers and dealers, while Reg U concerns the extension of credit by lenders for the purpose of buying or carrying margin stock.
Regulation T (Reg T) specifically deals with the amount of credit that may be provided to clients by brokers and dealers for purchasing securities. It sets initial margin requirements and payment rules for transactions made in a customer's margin account. In contrast, Regulation U (Reg U) governs the lending practices of banks when they provide credit to purchase margin securities. It imposes limits on the amount of money a bank can lend for the purpose of buying margin stock.