Final answer:
Regulation U governs the extension of credit by banks to customers for carrying margin securities under the Securities Exchange Act of 1934.
Step-by-step explanation:
The regulation in the Securities Exchange Act of 1934 that governs the extension of credit by banks to their customers for the purpose of carrying margin securities is Regulation U.
Regulation U, also known as the Credit by Banks for the Purpose of Carrying Margin Securities Regulation, imposes certain restrictions and requirements on banks when providing credit to customers for investing in securities on margin. It sets limits on the amount of credit that can be extended and requires the maintenance of proper margin levels.
For example, if a bank customer wants to purchase securities and finance a portion of the purchase through a loan from the bank, Regulation U ensures that the customer complies with the specified margin requirements and limits set by the SEC. This regulation helps to prevent excessive speculation and maintain the stability of the financial market.