On June 12, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency jointly issued host state loan-to-deposit ratios that will be used to determine compliance with section 109 of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (Riegle-Neal). The ratios were last updated on June 13, 2006.
Section 109 of Riegle-Neal prohibits a bank from “establishing or acquiring a branch or branches outside of its home state primarily for the purpose of deposit production.” It also prohibits branches of banks controlled by out-of-state bank holding companies from operating primarily for the purpose of deposit production. Section 109 also sets forth a two-part test to measure compliance. Initially, the test “involves a loan-to-deposit screen that compares a bank’s statewide loan-to-deposit ratio to the host state loan-to-deposit ratio for banks in a particular state.” The next step is then conducted only if a bank’s statewide loan-to-deposit ratio is less than one-half of the published ratio for that state or if data involved are not available for a bank to perform the first step analysis. The second step requires that the “appropriate banking agency determine whether the bank is reasonably helping to meet the credit needs of the communities served by the bank’s interstate branches.” Failure of both the first and second step results in a violation of section 109 and is subject to sanctions issued by the appropriate banking agency.