The Federal Reserve, FDIC and OCC issued on Monday, as an update to data released last week, the loan-to-deposit ratios the regulators will use to determine institutions’ compliance with the 1994 Riegle-Neal Interstate Banking and Branching Efficiency Act.
Section 109 of the Riegle-Neal prohibits a bank from establishing or acquiring a branch or branches outside of its home state for the sole purpose of deposit production, and the provision also prohibits branches of banks controlled by out-of-state holding companies from operating for the sole purpose of deposit production.
The provision also provides a test to determine compliance with the requirements. A loan-to-deposit ratio screen compares a bank’s statewide loan-to-deposit ratio to the host state loan-to-deposit ratio.
If a bank’s loan-to-deposit ratio is less than half of the published ratio for the state or if data is not available at the bank to conduct the first part of the test, the appropriate banking agency will determine whether the bank is helping to meet the credit needs of communities served by its branches.
A bank that fails both parts of the test is subject to sanctions by banking regulators.